On the first trading day of September, the main Zhengzhou cotton futures contract fell below the key psychological level of 17,000 yuan/ton, and continued to decline the next day to close at 16,825 yuan/ton, down 110 yuan/ton in a single day. This correction was not driven by a single bearish factor but resulted from a confluence: external ICE cotton gains had largely priced in positive news, hawkish statements from US Federal Reserve officials added macro pressure, and crowded long positions at high levels triggered profit-taking on minor negative cues. For textile enterprises, this may reopen a window for raw material procurement, but a confirmed downtrend remains elusive.
Supply-Demand Outlook: Ease Meets Weather Variables
The International Cotton Advisory Committee (ICAC), in its September 2 report, estimated 2026/27 world cotton production at 26.2 million tons, exceeding consumption expectations of 25.9 million tons, indicating a slightly loose balance for the new season. On the surface, this caps upside potential. However, cotton growing seasons are fraught with variability—weather anomalies and pest outbreaks could easily erode the projected surplus, providing a floor under prices. In other words, the ease is on paper; weather is the real variable.
Domestically, Xinjiang cotton has entered the critical boll-opening phase, with growth ahead of the seasonal norm. Defoliant spraying is set to begin in major producing areas in early September, potentially advancing machine-picked cotton market arrivals. Southern Xinjiang has seen dry, sunny weather favorable for opening and sun-drying, while northern areas experienced only scattered showers, posing minimal disruption. This suggests earlier supply pressure on spot markets, but precipitation changes need close monitoring as any anomaly could impact quality and yields.
Downstream Transmission: Weak Recovery, Inventory Holds Key
The traditional peak season has started, but downstream recovery is tepid. Yarn and fabric mills are gradually raising operating rates, with yarn shipments slightly improving week-on-week, indicating marginal demand recovery. However, momentum falls short of expectations, industry inventories remain high, and yarn destocking is slow. Regular reserve cotton sales continue to supplement market supply, and with both supply and demand offsetting, spot transactions are lackluster, and bullish sentiment is cautious.
For buyers, high yarn inventories may increase bargaining power in fabrics; for traders, overseas demand recovery will directly influence destocking speed. If peak-season demand stays weak, cotton prices lack upward drive; but rapid inventory drawdowns could trigger restocking rallies.
Overseas, US cotton fundamentals look bearish. The crop is entering boll opening but development lags, with drought worsening in key regions and quality ratings declining. Forecasts indicate continued hot, dry weather, potentially exacerbating dryness. Market expectations for reduced US output are strengthening, and subsequent quality and abandonment data will be critical for external prices. This provides underlying support internationally, but a trend requires data confirmation.
Market Outlook: Wide Fluctuations Awaiting Catalysts
In summary, the cotton market is caught in intense long-short battles, with pressure from both sides. Support comes from El Niño-induced global production cut expectations, mid-to-low domestic inventories, and peak-season demand hopes. Capping prices are reserve sales, high yarn inventories, realized positives, and a bearish macro environment. In the short term, cotton prices are likely to fluctuate widely, with directional breakthroughs awaiting new fundamental drivers—such as weather shocks, policy shifts, or significant order gains.