The U.S. dollar index, after three consecutive days of gains, suddenly reversed course, directly igniting a rebound in ICE cotton futures. On June 25, the most-active December contract hit a two-week low of 76.09 cents per pound before rallying to close at 76.97 cents, up 0.71 cent or 0.93%. Behind this price swing lies a more complex supply-demand signal: export data has weakened for three consecutive weeks, while Middle East geopolitical risks are reshaping the pricing logic of cotton substitutes.
Dual Engine of Dollar and Oil
The weaker dollar was the most direct driver of the day's rebound. U.S. inflation data released that day came in lower than expected, dampening market bets on a Fed rate hike this year and sending the dollar index lower. For overseas buyers holding non-dollar currencies, dollar-denominated cotton became relatively cheaper, providing a short-term boost to purchasing appetite. At the same time, international oil prices rose over 2% after a cargo ship was attacked near Oman, reigniting concerns about shipping disruptions in the Strait of Hormuz. Higher oil prices mean higher costs for polyester fiber, enhancing the substitution advantage of natural cotton—a chain reaction quickly reflected in the market.
StoneX analyst Bailey McHenry noted that yesterday's sharp sell-off triggered technical repositioning, with speculative capital finding a 'safety net' near 76 cents, where buyers were willing to enter. This suggests the 76-cent level may serve as a key psychological support in the near term, but the sustainability of the rebound depends on subsequent fundamentals.
Export Data Reveals Demand Weakness
Despite the day's gains, the USDA's weekly export sales report poured cold water on the market. For the week ending June 18, current-year U.S. upland cotton net sales were only 83,864 running bales, down 53% from the previous week and 61% below the prior four-week average. Next-year net sales added 67,089 bales, for a combined total of 150,953 bales. More notably, although shipments rose 20% week-over-week to 300,155 bales, shipments to China were just 12,248 bales, accounting for only 4% of the total.
- Current-year net sales: 83,864 bales, down 53% WoW, down 61% vs. four-week average
- Next-year net sales: 67,089 bales
- Total shipments: 300,155 bales, up 20% WoW, down 16% vs. four-week average
- Shipments to China: 12,248 bales, only 4% of total
These data send a clear signal: overseas textile mills are purchasing 'hand-to-mouth' rather than actively restocking. Given that spinning capacity in Southeast Asia remains at low levels, a surge in U.S. cotton exports is unlikely in the near term.
Industry Impact: Transmission and Price Expectations
For domestic textile enterprises, the ICE cotton rebound means a short-term rise in imported cotton costs. The Cotlook A index has fallen to 85.05 cents per pound, down 250 points from the previous day, and the domestic-import spread continues to narrow. If the dollar weakens further, imported cotton prices will gain support, making domestic Xinjiang cotton more cost-competitive and potentially spurring a pickup in procurement.
On the other hand, the impact of Middle East tensions on oil prices cannot be ignored. If shipping risks in the Strait of Hormuz persist, Brent crude may stay elevated, pushing up polyester staple fiber and other chemical fiber raw material prices. For blended fabric mills, the substitution balance between cotton and man-made fibers will shift, potentially extending the procurement window for cotton.