Nov. 29 (Bloomberg) -- Cotton rose the most allowed in New York, after slumping by the exchange limit three times last week, as efforts to curb inflation may be less severe than expected in China, the world’s top consumer.
Data from China’s central bank suggest the country’s domestic banks may end up lending more money this year than the government intended. After raising interest rates last month, officials have threatened to impose controls to curb agriculture prices and the fastest inflation in 25 months. Cotton has dropped 24 percent from a record earlier this month.
“The Chinese stepping on the brakes is not as severe as initially feared,” said Peter Egli, the director of risk management in Chicago at Plexus Cotton Ltd., a U.K.-based merchant. “That may have led to a little bit of a turnaround in the Chinese market.”
Cotton for March delivery rose by the exchange maximum of 4 cents, or 3.6 percent, to settle at $1.1576 a pound at 2:37 p.m. on ICE Futures U.S. in New York. The fiber lost 9.2 percent last week, the biggest such drop since February 2009.
Cotton futures have jumped 53 percent this year, reaching a record of $1.5195 a pound on Nov. 10. Prices surged on concerns that mounting demand in China would outpace dwindling supplies in countries around the world, especially in the U.S., the largest exporter.
China’s domestic banks extended 6.9 trillion yuan ($1.04 trillion) of new loans in the 10 months through October, suggesting that the government’s full-year target of 7.5 trillion yuan may be breached, according to central bank data.
Cotlook Index
The Cotlook A Index, which reflects the average of the five cheapest cotton prices at Far East ports, fell 3.2 percent to $1.4335 a pound today. The difference between the Cotlook A Index and cotton futures prices was 27.59 cents today, down from a 15-year high of 36.34 cents last week.
“The physical prices as represented by the A Index are way overvalued or the futures market is way undervalued,” Egli said. “Maybe the two will approach each other again.”
In China, demand will outpace supply by 17 million bales in the year that ends in July, the U.S. Department of Agriculture forecast earlier this month. The Asian nation may import 15 million bales, up 38 percent from last year, according to a Nov. 9 USDA report. A bale weighs 480 pounds, or 218 kilograms.
Cotton output in China may fall 5.5 percent this year to 6.36 million metric tons after rain and cold weather damaged crops, research company Cncotton.com has said.
China’s government will hold an annual economic meeting in Beijing late next week to set guidelines for monetary and fiscal policy in 2011, two people with knowledge of the matter said. Officials may discuss lending and inflation targets at the Dec. 10-12 meeting, one of the people said, speaking on condition of anonymity.
