On September 2, the main cotton futures contract on the Zhengzhou Commodity Exchange broke below the key psychological level of 17,000 yuan per ton, and continued to decline the next day, closing at 16,825 yuan per ton, down 110 yuan in a single day. This pullback is not an isolated event but the result of three overlapping factors: external market gains had been fully priced in, macro sentiment turned cautious, and crowded speculative positions triggered profit-taking. For the textile industry chain, a lower cotton price center means phased relief in raw material costs, but whether downstream sectors can benefit from the decline depends on the actual recovery of terminal orders.
Supply-Demand Balance: Ease vs. Weather Risks
The International Cotton Advisory Committee (ICAC) released its monthly report on September 2, estimating global cotton production for 2026/27 at 26.2 million tons, slightly above the consumption forecast of 25.9 million tons, indicating a modestly loose balance for the new season. However, this balance sheet assumes ideal weather conditions. The growing season is fraught with uncertainties, and any adverse weather or pest outbreaks could shrink the current surplus, providing a floor for prices.
Domestically, Xinjiang cotton has entered the peak boll-opening period, with growth progress ahead of last year. Defoliant spraying is set to begin in early September across major producing areas, potentially advancing the listing of machine-picked cotton. Southern Xinjiang has been dry with little rain, favorable for boll opening and drying; northern Xinjiang saw only sporadic rainfall early in the week. An earlier new-crop supply could intensify market pressure but also offers textile mills an opportunity to lock in supplies sooner.
Industry Transmission: Weak Peak Season, Slow Inventory Drawdown
Downstream markets are in the traditional 'golden September' peak season, with spinning and weaving mills raising operating rates and yarn shipment efficiency improving slightly week-on-week, indicating marginal demand recovery. However, the recovery is weaker than expected, inventory pressure remains high, and yarn destocking is slow. Regular reserve cotton auctions continue to supplement market supply, and with both supply and demand offsetting each other, spot trading is lackluster, and bullish sentiment is cautious.
For textile enterprises, procurement strategies must remain flexible. Lower cotton prices reduce immediate purchasing costs, but excessive bearishness could lead to understocking and expose firms to price volatility when new cotton hits the market. Meanwhile, order visibility in downstream fabric and apparel sectors remains limited, and passing on yarn price increases to end-users is challenging, squeezing mill profitability.
International Variables: US Production Cut Expectations Heat Up
US cotton growth is unfavorable. The crop is entering boll opening but lags schedule, with drought worsening in key regions and quality ratings declining. Forecasts indicate continued hot, dry weather this week, potentially intensifying drought. Market expectations of US production cuts are strengthening, and future quality and abandonment rate data will be key indicators for external prices. If such expectations solidify, import costs could rise, limiting downside for Chinese cotton.
Outlook and Operational Advice
In summary, the cotton market is caught in intense long-short battles, with pressures from above and below. Support comes from El Niño-induced global production cut expectations, low domestic inventories, and seasonal demand hopes. Suppression stems from reserve sales, high downstream inventories, and fully priced-in positives. Short-term, prices are likely to fluctuate widely, awaiting substantive supply-demand catalysts.