Rate Hike Expectations and Weak Demand Weigh on Cotton Prices

Macro headwinds and weak industrial demand have combined to push the cotton market into one of its sharpest declines this year. Zhengzhou Cotton Futures fell for three consecutive sessions, closing at 15,830 yuan per ton, down 190 yuan in a single day. The spot market faced even greater pressure, with the 3128B grade cotton price index dropping 208 yuan to 17,569 yuan per ton. Mills are increasingly eager to sell, and quotes are generally softening.

The Trigger: Reversal in Macro Expectations

The direct catalyst for this downturn is a sharp reversal in overseas macro policy expectations. The US May nonfarm payroll data significantly exceeded market forecasts, directly strengthening the probability that the Federal Reserve will continue raising interest rates this year. A stronger US dollar and tighter global commodity liquidity have simultaneously pressured international cotton prices. The ICE cotton futures contract settled at 77.46 cents per pound, with a minimal daily decline of 0.03%, but overall it remains in a weak trading range. The synchronized decline of domestic and international cotton prices means China's market cannot remain isolated—falling import costs combined with ample domestic supply have further pushed down the price center.

Midstream: Cotton Yarn Prices Stubborn, But Inventories Are Building

In contrast to the continuous fall in cotton prices, cotton yarn prices have been relatively resilient, with limited overall fluctuations. However, as upstream raw material cost support continues to weaken, some small and medium-sized spinning mills have begun to slightly lower their quotes, with reductions concentrated in the range of 50-100 yuan per ton. More noteworthy is the change in market rhythm: weaving mills are significantly reducing proactive inquiries, end-user purchasing willingness is cooling, and finished yarn inventories are slowly accumulating. Spinning mills have become cautious in their business outlook, but procurement behavior has diverged—some mills dare not stockpile due to insufficient orders, while others are taking advantage of the price dip to replenish inventory on a need-to-buy basis. This divergence reflects a lack of consensus on the market outlook, with a wait-and-see attitude dominating.

The Root Cause: Weak End-User Demand Across the Chain

The sluggishness in the downstream cotton textile chain is the fundamental factor constraining price recovery. In the chemical fiber fabric sector, orders have continued to shrink recently. Although upstream chemical fiber raw material prices have edged down, frequent fluctuations have led fabric producers to abandon bulk stocking, maintaining only small, rush orders. The printing and dyeing segment, as the terminal window of the textile chain, presents a typical pattern of 'many inquiries, few firm orders', with a severe shortage of new orders. End-user demand from apparel and home textiles has yet to recover, and this has transmitted back to the upstream weaving and dyeing stages, limiting overall industry operating rates. This means that even if upstream cotton prices see a temporary rebound, without actual end-user purchasing to absorb it, the recovery is unlikely to be sustained.

Short-Term Outlook: Weak Range-Bound, Awaiting Demand Signals

In summary, the current cotton market is caught in a dual weak pattern of macro headwinds and sluggish end-user demand. On the macro front, Fed rate hike expectations will continue to influence global commodities, and tighter dollar liquidity will likely continue to suppress international cotton prices, raising the probability of an inverted domestic-international price spread. On the industrial chain front, whether downstream textile and dyeing orders can recover is the key variable determining whether cotton prices can bottom out. Until a clear inflection point in end-user demand appears, upside potential for cotton prices will remain limited.

For Buyers - Current cotton prices are at a cyclical low, but due to weak end-user demand, the momentum for a price rebound is insufficient. It is recommended to procure on an as-needed, batch-by-batch basis and avoid large one-time stockpiles. - Closely monitor the dollar trend and Fed policy signals. If rate hike expectations strengthen further, the synchronized weakness in domestic and international cotton prices will persist, and procurement pace can be appropriately slowed.

For Foreign Trade Companies - International cotton prices are also weakening, but exchange rate fluctuation risks are increasing. It is advisable to use forward hedging tools to lock in costs and avoid currency losses eroding profits. - Against the backdrop of weak downstream orders, consider expanding into emerging markets or developing differentiated product lines to reduce dependence on traditional markets.