Cotton Futures Rise By Daily Maximum Allowed on Import Demand

Cotton futures in New York advanced the 6-cent limit imposed by ICE Futures U.S., climbing to a record, on speculation import demand from China, the world’s biggest user of the fiber, will be sustained, tightening global supply.

The March-delivery contract, the most active, climbed as much as 3.6 percent to the all-time high of $1.7283 a pound and was at $1.7282 a pound by 11:26 a.m. in London. Cotton prices have climbed 22 percent this year.

China’s imports totaled 2.84 million metric tons last year, according to customs data. That’s the most since 2006, when purchases were a record 3.47 million tons, Bloomberg data show. As of Jan. 13, exporters in the U.S., the world’s largest, have outstanding sales of 2.9 million bales to China, after shipping 1.8 million bales to the Asian nation in the year started Aug. 1, the U.S. Department of Agriculture said Jan. 21.

“It’s a tight supply situation,” said Ker Chung Yang, an analyst with Phillip Futures Pte. inSingapore. China may keep buying cotton from the U.S. after Chinese President Hu Jintao’s state visit to the U.S. last week, Ker said.

A delegation of Chinese buyers signed agreements on Jan. 21 to buy commodities including soybeans and cotton from Cargill Inc., Louis Dreyfus Corp. and Allenberg Cotton Co. during the U.S.-China Trade and Economic Cooperation Forum. The amount and terms of the purchases weren’t disclosed.

Still, the rally in cotton may not be sustained if China increases interest rates before the Chinese Lunar New Year holiday next week, to cool inflation, damping demand for commodities, Ker said.

China needs to extend interest-rate increases and allow the yuan to advance by about 5 percent annually to combat inflation and avoid fuelling asset bubbles, Li Daokui, a central bank monetary policy committee member, said in an interview at the World Economic Forum in Davos yesterday.

(Source: http://www.bloomberg.com/news/2011-01-27/cotton-futures-extend-gains-to-record-in-new-york-on-strengthening-demand.html)