The cotton market has recently undergone a significant correction. The main contract of Zhengzhou cotton futures broke below the psychological threshold of 16,000 yuan per ton, with spot and import cotton prices weakening in tandem, reflecting a bearish market sentiment. This decline is not driven by a single factor but is the result of a confluence of loose supply expectations, a challenging macro environment, and sluggish downstream demand recovery.
Supply Side: Increased New Crop Output Expectations Weighing
On the international front, US cotton planting is nearing completion, and expectations for the new crop's output have been raised. The anticipation of ample supply has been pressuring cotton prices since the start of the planting season, with the ICE cotton main contract dropping to 78.59 US cents per pound, a single-day decline of 1.03%. This decline quickly transmitted to domestic ports, with import cotton prices falling across the board on June 24.
Specifically, the international cotton price index for SM grade stood at 88.92 US cents per pound, translating to a duty-paid port price of 14,961 yuan per ton. The M grade index was 86.99 US cents per pound, equating to 14,627 yuan per ton. Notably, the M grade saw a larger decline than the SM grade, narrowing the domestic-import price spread, yet this did not boost the appeal of imported cotton.
Demand Side: Cautious Mill Procurement and Inventory Build-up
The domestic spot market also showed little improvement. The 3128B cotton price index was reported at 17,631 yuan per ton, a marginal drop of 1 yuan, but trading volumes were thin, lacking substantive support. Downstream textile mills reported that order recovery has fallen short of expectations, with finished product inventories piling up. Mills are adopting a hand-to-mouth procurement strategy, only replenishing in small batches as needed, with no appetite for large-scale stockpiling.
This cautious approach reflects a pessimistic outlook on future price trends. Without a clear improvement in end-consumer demand, it is difficult for the cotton price to find effective support from the demand side.
Macro and Sentiment: Systemic Downward Pressure
On June 23, China's commodity markets collectively weakened, with the cotton sector bearing the brunt. A strengthening US dollar further depressed valuations of dollar-denominated commodities. Global energy, grain, and financial assets also declined in tandem, prompting capital to flow out of the cotton market.
This systemic downward pressure leaves the cotton price with little short-term rebound momentum. The Zhengzhou cotton main contract closed at 15,905 yuan per ton, down 105 yuan from the previous settlement, with bearish sentiment intensifying.
Industry Impact: Accelerated Transmission Along the Chain
The price breakdown is accelerating its impact across the cotton supply chain. Upstream ginners are facing difficulties in selling lint cotton, with some holding inventory costs above current market prices, squeezing their margins. Traders are adopting a wait-and-see approach, reluctant to replenish stocks. While downstream textile mills benefit from lower raw material costs, their finished product prices are also under pressure, preventing a significant improvement in profit margins.
The narrowing of the domestic-import price spread theoretically enhances the competitiveness of imported cotton. However, in practice, mills prefer to wait for even lower prices, further slowing procurement.
Practical Recommendations
For Procurement Managers - Maintain a hand-to-mouth procurement strategy in the short term, avoiding large stockpiles until the market stabilizes. - Monitor the domestic-import price spread; when it narrows to a reasonable range, consider increasing imported cotton purchases. - Use futures tools to hedge spot price risks; below 16,000 yuan per ton on the Zhengzhou main contract, consider building a virtual inventory in tranches.
For Foreign Trade Companies - Closely track RMB exchange rate movements, as fluctuations can impact the actual cost of imported cotton. - Negotiate flexible pricing mechanisms with overseas suppliers, such as point-based pricing or floating basis contracts. - Monitor weather conditions in US cotton-growing regions; extreme weather could trigger a price rebound, so consider locking in some orders in advance.
The cotton market is currently trapped in a weak pattern under multiple bearish factors, with no clear improvement signals from either supply or demand. The industry must continuously track three key variables: weather in US cotton regions, domestic textile orders, and RMB exchange rates. Only a new bullish catalyst from the supply-demand side can break the current downward trend.