The main contract of Zhengzhou Cotton Futures broke through the critical psychological level of 16,000 yuan per ton on June 23, closing at 15,905 yuan, down 105 yuan for the day. This is not just a technical breakdown; it signals a general downward shift in the market's pricing center. On the same day, the ICE cotton futures main contract closed at 78.59 cents per pound, a decline of 1.03%. The bearish sentiment quickly transmitted to domestic ports on June 24, with import cotton quotes edging lower across the board.
A Decline Driven by Macro and Fundamental Pressures
This decline is not due to a single factor but the combined effect of three pressures. First, the macro level: a strengthening US dollar directly suppresses the valuation of dollar-denominated commodities, coupled with systemic weakness in global energy, grains, and financial sectors, leading to capital outflows from the cotton market. Second, the supply side: US cotton planting is nearing completion, and the market expects a relatively ample new-season supply, a factor that has long capped price upside. Finally, the demand side: the recovery of orders for domestic textile mills has fallen short of expectations, with finished product inventories piling up. Mills are only restocking on a small-scale, as-needed basis, and the willingness to make large-scale purchases is low.
Notably, the spread between domestic and international cotton prices is narrowing. On June 24, the price drop for M-grade (medium quality) imported cotton was 0.72 cents/lb, larger than the 0.59 cents/lb drop for SM-grade (high quality). This suggests that the price cut has not enhanced the appeal of imported cotton; instead, it reflects a more pessimistic outlook for mid-to-low-end demand.
Real Reactions from Industrial Belts
Feedback from industrial belts indicates that this round of decline has a differentiated impact on upstream and downstream players. Upstream ginners and traders face significant inventory devaluation pressure, with some holding costs above current market levels, prompting passive hedging needs. In contrast, downstream weaving factories are generally adopting a wait-and-see approach, believing that cotton prices still have room to fall and are unwilling to build safety stocks now.
This stalemate between upstream and downstream players is directly reflected in the transaction rhythm of the spot market. The domestic cotton 3128B price index stood at 17,631 yuan/ton, down only 1 yuan. The much larger decline in futures compared to spot indicates extremely poor liquidity in the spot market, where price signals are distorted. If futures continue to decline, the risk of a catch-up drop in the spot market cannot be ignored.
Short-Term Rebound Catalysts Lacking
The core logic currently suppressing cotton prices has shown no signs of reversal. The expectation of ample new-season supply from the US persists, and macro pressures from a strong dollar and weak commodity complex remain. Domestically, the recovery in downstream textile consumption is sluggish, offering little support on the demand side. Zhengzhou cotton, spot prices, and port import cotton are likely to continue their weak and volatile trend, with insufficient rebound momentum.
Three key variables warrant close monitoring: whether weather changes in US cotton regions will affect new-crop production expectations; whether domestic textile end-user orders can improve month-over-month ahead of the traditional peak season; and the impact of the yuan exchange rate on import cotton costs. Only a substantive bullish catalyst on the supply or demand side can break the current downtrend.