NEW YORK, Dec 15 (Reuters) - Cotton futures finished with moderate gains on Thursday, but prices could soon resume their downside trek, with little fundamental or technical news to keep them bolstered.
On Wednesday, cotton dipped to a 16-month low, it's third in as many days. Though the selling was staunched on Thursday, and prices could continue to rise for a few days, they will likely unravel again, analysts said.
Benchmark March cotton futures closed 1.17 cents higher, up 1.37 percent, at 86.29 cents per lb. The contract set an inside day, trading at a lower high of 86.71 and a higher low at 85.0 cents. Generally, after an inside day whichever direction prices head next dictates their near-term outlook.
Volume traded in the March futures came to 6,610 lots.
Earlier, the U.S. Department of Agriculture released its weekly export sales figures showing cotton in the current marketing year at 55,800 running bales, with new crop sales of 82,700 running bales.
'Without better export sales, what I'm worried about is whether we're going to start getting some cancellations. There are still a lot of contracts out,' said Bill Raffety, senior analyst for futures brokerage Penson Futures in New York.
Analysts have noted that while contracts may have been sold, many have yet to be shipped even though the sale was four or five months ago.
'I'd be a bit skittish if the cotton wasn't moving out, with prices today at 86 cents, but it was sold at $1.20. You're going to get pushback,' said Raffety, echoing other analysts.
Further, a report out of China showed its cotton planting area is projected to decline 9 percent in 2012, due to falling cotton prices.
The trimmed forecast in the biggest consuming country adds to news its economy is slowing.
On Wednesday, a separate report showed China's factory output shrank again in December after new orders fell, entrenching expectations that manufacturers are struggling with waning global demand and tight domestic credit.
'With China talking about a housing slowdown and a need to take steps to keep the economy from slowing further, I think that's something people should be looking at,' said Raffety.
On the technical side, little support is seen aside from prior lows dating back to August 2010 and before. Some analysts noted that cotton prices have been stairstepping their way down in 10 to 12 cent increments, which would target 82 and 80 cents in the March contract.
Cotton's fundamental outlook has been darkened further by the U.S. Agriculture Department's latest monthly supply/demand report forecasting lower world 2011/12 cotton consumption at 111.34 million (480-lb) bales, with production far ahead at 123.42 million bales.
Open interest in cotton, read as an indicator of investor exposure, came to 146,435 lots as of Wednesday, down from 149,255 on Tuesday, exchange data showed, suggesting investors are holding significant short positions in cotton.
The total tally on Wednesday was 13,094 lots, up from Tuesday's count of 9,863 lots, ICE Futures U.S. data showed.
