The bearish sentiment in the cotton market hit a milestone on June 23: the main Zhengzhou cotton futures contract breached the psychologically critical level of 16,000 yuan/ton intraday, closing at 15,905 yuan/ton, down 105 yuan from the previous settlement. This integer level, once seen as a stronghold for bulls, crumbled under a systemic confluence of negative factors.
Spot and Futures: Weakening in Tandem, but Driven by Different Logic
The futures decline was not an isolated event. On the same day, China's commodity markets broadly fell, with the cotton sector among the worst performers as bearish capital actively added short positions. After losing the 16,000 mark, short-term technical support shifts to the 15,500-15,700 yuan/ton range, and a rebound would require fresh bullish catalysts.
The spot market showed greater stickiness but remained weak. The 3128B price index stood at 17,631 yuan/ton, down a marginal 1 yuan, reflecting price rigidity amid extremely thin trading volume. Downstream textile mills reported slower-than-expected order recovery and rising finished goods inventories. Procurement strategies have tightened from 'hand-to-mouth' to 'small-lot replenishment on demand,' with virtually no appetite for bulk stocking. This demand-side 'hypothermia' means spot prices lack upward elasticity; if futures continue to fall, the risk of spot price catch-down will increase rapidly.
External Transmission: Double Blow from Ample Supply and Macro Headwinds
International headwinds were more concentrated. The ICE cotton futures main contract settled at 78.59 cents/lb, down 1.03%. The decline stemmed from two fronts: first, the US new-crop planting is nearly complete, leading to ample supply expectations that weigh on prices; second, a strengthening US dollar directly depresses valuations of dollar-denominated commodities, compounded by systemic declines in energy and grains sectors, prompting capital outflows from cotton.
The external weakness quickly transmitted to Chinese ports on June 24. Imported cotton quotes edged down across the board. The SM grade equivalent duty-paid port price was 14,961 yuan/ton, while the M grade was 14,627 yuan/ton. Notably, the M grade fell more than the SM grade, narrowing the domestic-import spread. While narrower spreads typically boost import competitiveness, in the current demand-weak environment, buyers' price sensitivity is diminished, and import cotton transactions have not picked up.
Supply and Demand: No Reversal Signals in Sight
The core logic suppressing cotton prices shows no signs of reversal.
On the supply side, ample US new-crop expectations persist, and weather in major Northern Hemisphere producing regions remains generally normal, with no extreme events likely to cause significant production losses. Domestically, while Xinjiang has experienced localized weather disruptions, they have not yet formed substantive reduction expectations.
On the demand side, China's textile consumption recovery is sluggish, with end-user orders dominated by short-term, small-lot transactions, lacking sustained large orders. The export sector faces dual tests from Renminbi exchange rate volatility and uncertain overseas destocking speeds, keeping procurement sentiment cautious.
At the macro level, the US dollar's strengthening trend is unlikely to reverse in the short term, and the overall commodity market remains under pressure. Until the Fed's policy path becomes clearer, systemic risks will continue to suppress valuations of risk assets like cotton.
Key Variables: Three Observation Windows
The Zhengzhou futures, spot, and imported cotton markets are likely to maintain a weak, oscillating trend with limited rebound momentum. The industry should focus on three major variables:
- US cotton belt weather: If extreme weather such as drought or hurricanes occurs during the growing season, it could overturn ample supply expectations and become a trigger for a bullish reversal.
- Domestic textile end-orders: The order front-loading situation for the traditional peak season in September-October will be the true test of demand. If orders remain lackluster by late August, the market may seek lower support.
- Renminbi exchange rate: If the Renminbi continues to depreciate, it will raise import cotton costs, providing some support for domestic futures, but it also increases uncertainty for textile mills' raw material procurement.