Cotton Falls on Concern Demand Will Shrink as Economy Slows
Source: Bloomberg Date: 2008-11-12
Nov. 7 (Bloomberg) -- Cotton futures fell to the lowest in almost four years amid speculation demand for the fiber will decrease as a slowing global economy curbs consumer spending.
World consumption will drop 4.8 percent to 24.53 million metric tons in the year ending July 31 from the previous year, the biggest decline ``in recent history,'' Cotlook Ltd. said yesterday. Two weeks ago, the Birkenhead, U.K.-based researcher forecast cotton use of 25.15 million tons.
``It's the fear of shrinking demand,'' said John Flanagan, the president of Flanagan Trading Corp. in Fuquay-Varina, North Carolina. ``The concern is China is going to buy less than people expect because there's less demand for their textile products.''
Cotton futures for December delivery fell 0.91 cent, or 2.1 percent, to 42.07 cents a pound on ICE Futures U.S. in New York. Earlier, the price reached 42 cents, the lowest for a most-active contract since Dec. 6, 2004. The fiber lost 5 percent this week, after tumbling 23 percent in October, the steepest monthly drop since at least April 1986.
Consumption in China, the world's biggest cotton user and textile exporter, will fall by 400,000 tons to 10 million tons, Cotlook said. Indonesia and Pakistan are also expected to consume less than projected two weeks earlier, the researcher said.
If futures linger in the 35-to-45-cent range, farmers in Africa, Pakistan, China and India will all reduce acreage, which should eventually boost fiber prices, Flanagan predicted. Still, it may take a year or two for cotton's self-correcting mechanism to kick in, he added.
Cotton has declined 38 percent this year.
``We're not at the bottom yet, but we're very near it,'' Flanagan said.
