The fall of the 17,000 yuan/ton mark did not halt the decline in Zhengzhou cotton futures. On September 3, the main contract closed at 16,825 yuan/ton, down 110 yuan for the day. This correction was not driven by a single bearish factor but by a combination of earlier overextension in external markets, a weakening macro environment, and crowded trading positions. For the textile industry chain, this breakdown is not a cause for panic but an opportunity to reassess the underlying supply-demand logic.
Supply-Demand Balance Shifts
The latest global cotton supply-demand data set a bearish tone. The International Cotton Advisory Committee (ICAC) estimated in its early September report that 2026/27 world production would reach 26.2 million tons, against consumption of 25.9 million tons, implying a surplus of about 300,000 tons. This suggests a shift from last year's tight balance to a modest surplus. However, this projection carries uncertainty—the growing season is not over, and weather anomalies or pest outbreaks in major producing areas could shrink the surplus, providing underlying support that limits deep price declines.
Domestically, new cotton harvesting is progressing faster than in previous years. Xinjiang cotton has entered the boll-opening stage, with defoliant spraying starting in early September in major producing areas, potentially bringing machine-picked cotton to market earlier. Southern Xinjiang has seen dry weather favorable for opening and drying, while northern Xinjiang experienced only sporadic rain early in the week, with minimal disruption. Faster harvesting means supply pressure will arrive earlier than usual, weighing on the cash market. Meanwhile, regular reserve cotton releases continue to supplement circulation, and with both supply-side factors, spot trading remains sluggish and market sentiment cautious.
Weak Peak Season, High Inventories
The downstream textile sector is in its traditional peak season, but the recovery is weaker than expected. Mill operating rates have risen steadily, and cotton yarn shipments have improved slightly week-on-week, indicating marginal demand recovery. However, industry-wide inventories remain high, and destocking of cotton yarn is slow. The lackluster peak season directly curbs mills' restocking appetite—buyers remain cautious, purchasing on a need-basis, which fails to provide sustained support for cotton prices.
Internationally, U.S. cotton growth conditions are bearish. The crop is entering boll-opening but is behind schedule, with drought worsening in key producing areas and quality ratings declining. Forecasts indicate continued hot, dry weather, likely exacerbating drought conditions and strengthening expectations of reduced U.S. output. Subsequent quality and abandonment rate data will be key indicators for external prices; if production cuts materialize, they could partially offset the global surplus.
Trading Logic Amid Long-Short Battle
The cotton market is caught between opposing forces. On the support side: El Niño-related climate disruptions raise global production cut expectations; domestic cotton inventories are at mid-to-low levels; and peak season demand expectations persist. On the pressure side: reserve cotton releases ensure ample supply; high downstream yarn inventories dampen purchasing enthusiasm; and earlier bullish factors have been fully priced in, with a bearish macro backdrop. These counterbalancing forces suggest cotton prices will likely remain rangebound in the near term, with directional moves awaiting substantive new supply-demand drivers.
For industry players, this implies greater risk in taking one-sided positions. After the breakdown, sentiment is weak, but downside is limited by production cut expectations and low inventories; upside is capped by supply pressure and weak demand. Operations should adopt a range-bound approach, closely monitoring Xinjiang harvest weather, U.S. crop conditions, and reserve release pace.