NEW YORK: The waves of contract defaults that have plagued the cotton industry slowed in the first half of 2013 from the all-time highs seen in the aftermath of extreme price volatility, an industry association said on Tuesday.
The International Cotton Association (ICA) has received 52 requests for arbitration on contract defaults in the first half of the year, compared with 135 requests during the same period in 2012, as the industry returns to more "normal" operating conditions, the UK-based trade organization said in a statement.
Still, the current pace remains high, and the industry continues to reel from a decreased sense of counterparty trust following a historic price run-up in early 2011, traders said.
The ICA received a record of 247 requests last year, which was five times the normal yearly average, according to the association.
Fiber surged above $2 a lb, the highest levels since the US Civil War, in early 2011, as a severe Texas drought threatened crops in the world's top exporter and China began building its government reserves.
As supply concerns waned, prices sank. The price whipsawing prompted cotton growers and textile mills to default on their contracts at an unprecedented pace.
Price volatility has been more muted since then, though it remains a concern for the trade. Front month cotton prices have fallen 10 percent from a high of nearly 94 cents a lb in mid-March.
"The market has been calming down, so we're seeing defaults slowing down," said a US cotton merchant, though he said he expected they would increase iif volatility again heightens
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