February 26, 2013 / 10:01 PM / 5 years ago

Cotton recovers from 2-week low as mills spot chance to buy

* Cotton inches up after reaching lowest price since Feb. 13

* Fiber down 4 percent from last week’s 9-mth highs

* Prices remain below 10-, 20-day moving averages

By Chris Prentice

NEW YORK, Feb 26 (Reuters) - Cotton inched up on Tuesday as a some mills spotted an opportunity to buy when prices declined to a near two-week low earlier in the day amid profit-taking.

The most-active May cotton contract on ICE Futures U.S. gained 0.11 cent, or 0.1 percent, to settle at 81.83 cents per pound. Earlier in the day, fiber fell as low as 81.39 cents a pound, the lowest price since Feb. 13.

Cotton prices have fallen back more than 4 percent since climbing to nine-month highs last week. Though Tuesday’s dip to a two-week low prompted some limited buying from mills and helped lift fiber by the session’s close, cotton remained below key technical levels.

“There have been some (price) fixations as the market dips, but the momentum has been taken out of the market for now,” said Peter Egli, director of risk management for Plexus Cotton Ltd, a medium-sized British-based merchant.

The 80-cent level was seen to be an area of support for cotton, where the U.S. futures market would be more in line with physical cotton prices.

Short-covering also helped support prices. Commercial traders hold a large net short in cotton futures and options that they may be beginning to unwind, Egli said.

Commercial dealers held their largest net short position in the market since September 2010 in the week to Feb. 19, Commodity Futures Trading Commission data showed.

Meanwhile, speculators are holding their largest bullish bet in cotton futures and options since September 2010, which has helped drive the recent price surge, with cotton up nearly 8 percent since the start of the year.

After three straight weekly declines, the upward momentum seemed to grind to a halt late last week as cotton prices dropped back from a high of 85.24 cents a lb touched on Wednesday, Feb. 20.

Trading volumes have also fallen back slightly, totaling about 17,000 contracts on Tuesday, compared with a 30-day average of more than 24,000, according to preliminary Thomson Reuters data.

Cotton settled below both its 10- and 20-day moving averages on Monday and stayed below them throughout Tuesday.

“There’s definitely some profit-taking,” said Nick Gentile, senior partner at commodity trading consultancy Atlantic Capital Advisor, who noted that some investors may have seen the surge to around 85 cents as the top of the market.

The recent jump in prices had sparked concern demand would decline.

Cotton prices posted yearly losses in 2011 and 2012 as lower-priced, manmade alternatives eroded demand for the natural fiber and global inventories grew. (Reporting By Chris Prentice; Editing by Peter Galloway)

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