* Market rides fund, mill buying higher
* Trade awaits cotton export verdict by India
* Coming up: China to return from holiday
NEW YORK, Sept 24 (Reuters) - Cotton futures finished
higher on Friday on investment fund and possible mill buying as
the market finished the week up 1.7 percent, near a 15-year
peak, with traders looking toward the return of No. 1 consumer
China to the market after a holiday break.
Cotton, which surged past the $1 per lb level this week
although it settled just shy of that mark on Friday, drew
support during the session from a broad surge in stocks, gold
and crude values and a weaker dollar.
Cotton rallied to a 15-year high this week due to strong
demand, tight cotton stocks and heavy buying by investment,
hedge and long-only funds who view the market as undervalued.
"We're seeing a lot of bullish (momentum) in commodities,"
said Bill Nelson, an analyst for investment and farm
commodities consultancy Doane Advisory Services in St. Louis,
Missouri. For the fourth time in five session, cotton futures traded
over $1/lb, climaxing a surge that saw the market gain over 40
percent in value since the rally took off in late July 2010.
ICE Futures U.S. key December cotton contract CTZ0 gained
2.76 cents to finish at 99.93 cents per lb. On the week, the
market was up 1.74 percent. Volume stood at 15,553 lots at 2:43 p.m. EDT (1843 GMT),
barely lower when compared to the 30-day average of 15,862
lots, according to preliminary Thomson Reuters data.
Analysts believe the market's next move will depend on No.
1 consumer China and No. 2 cotton producer India. Talk
circulated in the U.S. cotton trade that Beijing will hold
discussions early next week about speculation in commodity
markets. "The Chinese come back (on Monday), so we'll see where we
go," said Raffety. The problem is that trading in China will be shortened next
week because the Asian country would again be on holiday from
Oct. 1 to 7.
The market also wants some clarity on what India plans to
do about cotton exports and whether it would start on Oct. 1 or
on Jan. 1, 2011. Nelson said there could be "nasty consequences" if China
clamps down on speculation in the cotton market. Such a move
would cool down prices of fiber contracts, and traders believe
that would give Chinese mills an opportunity to buy cotton at
lower prices. Still, many market watchers remain bullish on cotton,
saying demand from overseas buyers and purchases by funds which
believe prices will rise further should support cotton prices.
Macquarie Commodities Research said in a report that even
though cotton plantings will rise next season due to high
prices, "we think much of it will get quickly absorbed into
mill use or export sales, leaving little scope for stock
replenishment." It added: "Thus, barring any economic downturn ... the
global cotton market will remain very tight. With little
buffer, cotton remains susceptible to prices breaking out on
the upside to counter any supply disruptions."
There was no sign of a major change in positions in the
cotton market, according to data from ICE Futures U.S. Open
interest fell 1,209 lots to 235,919 lots as of Thursday.
Some market watchers are bearish, saying the coming U.S.
harvest and cotton exports by India should depress cotton
prices.