Lenzing AG (LNZ), an Austrian maker of cellulose fibers, dropped to an almost five-month low as cotton futures slumped to the weakest in more than 31 months on concern that a global economic slowdown may cut demand.
Lenzing, whose fibers compete with cotton, fell 5.5 percent to 65.61 euros at the 5:30 p.m. close of Vienna trading, be lowest level since Jan. 11.
Cotton for December delivery fell 0.6 percent to 67.23 cents a pound at 11:47 a.m. on ICE Futures U.S. in New York, after sliding to 64.61 cents, the lowest price for a most-active contract since Oct. 13, 2009. Before today, the commodity plunged 51 percent in the past 12 months.
Global use of cotton may reach 23.9 million metric tons in the year starting Aug. 1, 0.6 percent smaller than the forecast last month, according to the International Cotton Advisory Committee.
“As long as this weakness remains in cotton, there will be negative implications on Lenzing’s sentiment,” Gerald Walek, a Vienna-based analyst at Erste Group Bank AG who has a buy recommendation on Lenzing’s stock, said by phone.
The cellulose fiber maker can sell its products, made mostly from wood, at higher prices when cotton rises. Lenzing, based in the town of the same name, expects to benefit from high cotton prices as farmers switch to other more profitable crops, reducing cotton supply.
“One can’t forget that prices for special fibers aren’t as volatile as cotton and that Lenzing will also profit from falling raw-material prices,” said Walek. “In the longer term falling cotton prices are likely to make this crop less desirable for farmers, which in turn reduces the acreage for cotton and should have positive effects on the price.”
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