Zhengzhou cotton futures fell below the 17,000 CNY/ton mark in early September, closing at 16,825 CNY/ton on September 3, down 110 CNY/ton in a single day. This pullback is not an isolated event but a confluence of exhausted external bullish factors, weakening macro sentiment, and crowded speculative positions. For the textile industry, this means short-term support for raw material costs is loosening, but whether the downside opens further depends on new cotton supply and actual demand recovery.
Market Background
Internationally, ICE cotton had already priced in most positive news, lacking fresh catalysts. Hawkish remarks from US Federal Reserve officials added macro pressure, prompting profit-taking at highs and accelerating the decline in Zhengzhou futures. Meanwhile, the ICAC monthly report released in early September estimated global cotton production for 2026/27 at 26.2 million tons, exceeding the consumption forecast of 25.9 million tons, indicating a slightly loose supply-demand balance for the new season. This data set a bearish tone, but the report also noted that weather uncertainties during the growing season could narrow the surplus, providing a floor under prices.
Domestically, new cotton harvesting is progressing faster than usual. Xinjiang cotton has entered the boll-opening stage, and defoliant spraying will begin in early September, potentially bringing machine-picked cotton to market earlier. Recent dry weather in southern Xinjiang favors opening and drying, while northern Xinjiang saw only sporadic rain, causing minimal disruption. This suggests that new supply pressure may emerge earlier than in previous years, weighing on the spot market.
Industry Impact
The downstream sector is in the traditional peak season, but the recovery is weak. Yarn and fabric mills are operating at higher rates, and yarn shipments have improved slightly from the previous week, indicating marginal demand recovery. However, industry inventories remain high, and destocking of finished yarn is slow. Regular reserve cotton auctions continue to supplement market supply, and with supply and demand offsetting each other, spot transactions are lackluster, and market sentiment is cautious. For spinners, this means they can afford to be patient with raw material purchases, but they still face pressure in selling finished goods and must manage inventory risks.
US cotton growing conditions are bearish, with worsening drought in key regions and declining crop condition ratings, fueling expectations of reduced production. Subsequent good-to-excellent ratings and abandonment rates will be critical indicators for external prices. If weather deteriorates further, ICE cotton may rebound, transmitting to Zhengzhou futures. Enterprises relying on imported cotton should monitor exchange rates and freight costs and consider locking in forward supplies.
In summary, the cotton market is caught in a tug-of-war, with prices facing pressure from both sides. Support comes from El Niño-induced production cut expectations, mid-to-low domestic inventories, and peak-season demand hopes. Suppression arises from reserve auctions, high downstream inventories, and fully priced-in positives. In the short term, cotton prices are likely to fluctuate widely, with directional moves awaiting substantive supply-demand drivers.