January 08, 2013 - Cotton settled higher on Monday, on buying ahead of expectations for the index roll to soon begin, but the market remained trapped between key technical levels as it consolidated above the previous session's three-week low. The most-active March cotton contract on ICE Futures US closed up 0.66 cent, or 0.9 percent, at 75.71 cents per lb. "Everyone's front-running the index funds because the funds have to buy around 6,000 lots," said Nick Gentile, chief trader for New Jersey-based Atlantic Capital Advisors. Index funds are expected to begin rebalancing their portfolios this week, when they will buy commodities that became underweight due to poor 2012 performances.
Last year, cotton was the third-weakest performer on the Thomson Reuters-Jefferies CRB index, a global benchmark for commodities. It finished 2012 down 17 percent. The benchmark contract traded between key long-term technical levels that signal buy or sell signals to chart-based traders, depending on the market direction. The key contract traded between the 100-day moving average at 74.13 cents and the 200-day moving average at 76.15 cents. The weak US dollar and firm commodity complex were also viewed by dealers as supportive to the market.
The market was consolidative after falling to an intraday one-month low at 73.72 cents per lb on Friday on technical selling combined with bearish news out of China, the world's biggest cotton consumer and importer. China is considering issuing fresh import quotas and selling some of its massive cotton stockpile in a move merchants and analysts say is aimed at heading off a potential crisis in the world's largest textile industry. The news triggered concerns about how long the Chinese government's buying spree could last.
Stockpiling over the past two years has been a key prop to the market while mill consumption has flat lined. China's state reserves are now estimated to total some 9 million tonnes, equivalent to the annual needs of its mills. The day's quiet session came after weekly US Commodity Futures Trading Commission data released post-market on Friday showed speculators had increased their net long position in cotton futures and options for the fourth straight week, bolstering it up to the highest in more than one year, in the week to December 31. On Monday, government officials in the world's second-largest cotton producer, India, said it was likely to ramp up purchases of cotton to help farmers faced with sliding prices and scant export demand.