The world's largest user of cotton caused its futures to sink from record prices by suggesting a rise in borrowing costs as a method of halting inflation, Bloomberg reports.
China has increased rates for lending and depositing twice in a fourth-month period. The nation also has enhanced reserve requirements of banks on four occasions.
"Most commodity prices were under pressure on speculation that China may take further steps to cool inflation," Toshimitsu Kawanabe, an analyst at Central Shoji Co., a broker in Tokyo, told Bloomberg. "Also, the market may see some position-squaring before the Chinese New Year holidays, as it went up too much in a very short period."
Just before 3 p.m., cotton futures slipped 1.72 percent, an 0.11 cent reduction to $1.6183 per pound.
During the past year, cotton inventories have dipped 72 percent while Chinese imports shot up 86 percent in 2010.
"The demand for the commodity has not diminished," said Scott Joss, the president of ClearTrade Inc., a broker in Chicago, told Bloomberg. He said today's sinking price was prompted by "profit taking."
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