Cotton futures settled higher on Tuesday on investor short-covering as the market rebounded from its fall in the previous session to a nine-month low although players are still fretting over the unresolved debt woes in the United States and Europe, analysts said.
Fundamentally, the market is still wrestling with demand destruction after prices hit a record over $2 per lb this spring. "It had to be nearly bludgeoned to death (before rebounding)," said Keith Brown, president of commodity firm Keith Brown and Co in Moultrie, Georgia. "I think it's (spec) short-covering."
The key December cotton futures on ICE Futures US gained the 4-cent daily limit to end at $1.0084 per lb, with the session low at 97 cents. On Monday, the contract finished at 96.46 cents in the lowest close for the second-position contract since early October 2010, Thomson Reuters data showed.
Business was light after two consecutive sessions of heavy dealings. Total market volume hit around 10,200 lots at 2:42 pm EDT (1842 GMT), nearly 50 percent below the 30-day norm, Thomson Reuters preliminary data showed.
The market's focus was still fixed firmly on the debt crisis on either side of the Atlantic.
World stocks and the euro climbed Tuesday on upbeat US corporate earnings as investors looked ahead to an EU summit later this week on expectations that a solution to Greece's debt problems may be reached.
Brown and some analysts believe the market's steadiness may not last, given the poor demand for cotton from millers who have adequate coverage or have shifted to other fibres to lower their costs.
In fact, Brown said cotton may be gradually going back to its historical range between 60 and 90 cents after its strong rally in the last five months of 2010.
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