Legal Aftermath Of Cotton’s Wild Ride Continues Into 2012

Legal Aftermath Of Cotton’s Wild Ride Continues Into 2012

Legal trouble sparked by wild swings in the price of cotton during 2011 is bleeding over into this year.

The International Cotton Association, which sets the rules for most of the world’s cotton trade, said that it has received 16 requests for arbitration so far this year. Between 2000 and 2010, requests averaged 45 annually.

Last March, cotton prices on ICE Futures U.S. surged to a record high of $2.27 a pound but the prices nearly extinguished global demand for the fiber and drove futures prices down 37% in 2011. Many mills cancelled orders for cotton, sparking a wave of cancellations for fiber that had been purchased at the higher prices for delivery later in the year.

The effects reverberated throughout the industry, crushing margins at apparel companies, commodity firms and textile mills.

The Liverpool-based ICA received a record 242 requests in 2011. Cotton mills and merchants prefer ICA arbitration over courts in each country because the process is often faster, more uniform and less expensive.

Last week, the ICA’s president, Antonio Esteve, said a volatile market could severely damage the industry.

“It is easy to succumb to the attraction of short-term gains, but history shows that this will create irreparable damage that will affect the long-term economic sustainability of the cotton supply chain,” he said in a statement.

The ICA said it has developed a training course for spinners and cotton brokers to promote “responsible contracting.”

Cotton for March delivery on ICE Futures U.S. was recently trading at 97.70c a pound, down 0.5% on the day.