December 31, 2013 / 8:18 PM / 4 years ago

ICE cotton ends 2013 up 13 percent, ending two-year rout

* Prices rally as speculators boost bullish bets to five-year highs

* China’s stockpiling drives demand, pegs floor under prices

* Tightening U.S. supplies kept futures buoyed

By Chris Prentice

NEW YORK, Dec 31 (Reuters) - ICE cotton crawled to its first up year since 2010 on Tuesday, closing the year up 13 percent as speculators renewed their interest in fiber and bet that strong demand in top consumer China would offset global oversupply.

The spot March cotton contract on ICE Futures U.S. settled at 84.64 cents a lb, easing 0.02 percent from the previous day as they inched to their first annual gain in three years.

Cotton’s 2013 rally came against the backdrop of a broader commodities selloff, as investors piled into financial markets and the benchmark Thomson Reuters/Core Commodity CRB index posted a third straight yearly loss.

But speculators saw cotton as inexpensive after two years of steep losses and boosted their bullish stance to five-year highs during 2013.

China, the world’s top textile market, entered the third year of its controversial stockpiling program that has driven voracious demand for lower-priced foreign fiber and kept world prices high.

China launched its stockpiling program in 2011, paying above global prices to support farmers.

Even as global inventories have swelled to record levels, supplies elsewhere have tightened.

Available supplies shrank in the world’s top exporter as U.S. farmers planted their smallest crop in four years after prices tumbled from 2011’s historic levels above $2 a lb.

“The top story has been that China has a big hoard of cotton, but it’s not finding its way into the market very well and that’s keeping prices firm,” said Sterling Smith, a futures specialist with Citigroup in Chicago.

China is reported to be set to scrap the stockpiling program and switch to subsidies for soy and cotton, an overhaul likely to set world prices up for a steep tumble.

Traders expect that the shift could begin in the new year.

“2014 will be an interesting year. Resolution to the Chinese situation will be sought and that’ll lead to lower prices,” said Jordan Lea, chairman and co-owner of Eastern Trading in Greenville, South Carolina. (Reporting by Chris Prentice; Editing by James Dalgleish)

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