The cotton market experienced a clear 'triple whammy' on June 23: the main Zheng Cotton contract broke below the key psychological level of 16,000 yuan/ton, ICE cotton futures fell in tandem, and import cotton prices followed suit the next day. This downturn was not an isolated incident but a concentrated release of macro, fundamental, and capital pressures.
Chart Breakdown: Zheng Cotton Breaches 16,000, Bearish Sentiment Rises
On June 23, China's commodity market broadly weakened, with the cotton sector bearing the brunt. The main Zheng Cotton contract oscillated downward during the session, breaking through the critical 16,000 yuan/ton threshold to close at 15,905 yuan/ton, down 105 yuan from the previous settlement. Bearish capital increased positions, dampening bullish confidence.
The spot market also lacked support. The domestic 3128B cotton price index stood at 17,631 yuan/ton, edging down only 1 yuan. However, this 'stability' is more a lag in the reporting system than a reflection of robust trading activity. Downstream textile mills saw order recovery fall short of expectations, with finished product inventories piling up. Procurement remained limited to small, need-based restocking, with little appetite for bulk purchases.
External Pressure: Ample US Supply Expectations and Macro Headwinds
International bearish factors were more complex. US cotton planting neared completion, with market expectations for the new crop output generally raised, casting a long shadow of ample supply over prices. Meanwhile, the strengthening US dollar directly weighed on dollar-denominated commodity valuations. A broad sell-off in global energy, grains, and financial sectors led to systemic capital outflows from the cotton market.
On June 23, the main ICE cotton contract closed at 78.59 cents/lb, a single-day decline of 1.03%. While not extreme in recent market moves, the transmission effect was amplified given the domestic chart breakdown.
Port Transmission: Import Cotton Prices Drop, Domestic-International Spread Narrows
The external decline transmitted to Chinese main ports within 24 hours. On June 24, import cotton prices edged lower across the board. Based on a 1% tariff and the Bank of China's mid-rate, the international cotton price index SM grade delivery price was 14,961 yuan/ton, down 0.59 cents/lb; the M grade delivery price was 14,627 yuan/ton, down 0.72 cents/lb. Notably, M grade fell more than SM grade, reflecting that lower-grade cotton bears greater pressure during weak demand.
The domestic-international spread narrowed, but this did not boost the appeal of imported cotton. The reason: downstream mills remained broadly bearish on the outlook. Even with imported cotton cheaper than domestic, they preferred to wait rather than increase purchases.
Core Logic: Limited Rebound Potential, Three Variables Determine Outlook
The core logic suppressing cotton prices shows no sign of reversal. The ample supply expectation for the new US crop persists, macro pressures from a strong dollar and broad commodity weakness remain, and domestic downstream textile consumption recovery is sluggish, with demand-side support lacking.
Zheng cotton, spot, and port import cotton are likely to continue a weak, range-bound trend with insufficient momentum for a rebound. The industry must track three key variables:
- US cotton belt weather: Extreme weather during the planting season could reverse the ample supply expectation;
- Domestic textile end-orders: Whether export orders see a seasonal recovery in Q3;
- CNY/USD exchange rate: If the dollar continues to strengthen, import cotton costs will face further pressure.