The main Zhengzhou Cotton Futures contract broke through the key psychological level of 16,000 yuan per ton yesterday, closing at 15,905 yuan, down 105 yuan from the previous settlement. This breach signals that pessimistic expectations for near-term cotton prices have spread from the futures market to the spot market. The domestic 3128B cotton price index also weakened to 17,631 yuan per ton, a slight drop of 1 yuan, but combined with recent downstream procurement patterns, the support for spot prices is gradually eroding.
Multiple Headwinds: Macro and Industrial Pressures
This decline is not driven by a single factor. Internationally, the main ICE cotton contract also fell to 78.59 cents per pound, a daily decline of 1.03%. As the US cotton planting season nears completion, market expectations for the new season's output have become more ample. This, combined with a strengthening US dollar, has put widespread pressure on dollar-denominated commodities. The collective weakness in energy, grains, and financial assets has further accelerated capital outflows from the cotton market.
Domestically, the recovery of orders from downstream textile mills has clearly fallen short of expectations. The problem of accumulated finished product inventories remains unresolved, and most mills are only replenishing stocks on a small, as-needed basis, lacking the willingness for large-scale procurement. This demand-side weakness directly undermines the spot market's ability to support futures prices.
Imported Cotton Market: Narrowing Spread but No Boost in Appeal
The decline in the international market has quickly transmitted to domestic ports. On June 24, quotes for imported cotton at major ports all edged lower. The International Cotton Price Index for SM grade fell by 0.59 cents per pound, translating to a duty-paid port price of approximately 14,961 yuan per ton. The M grade fell by 0.72 cents per pound, translating to about 14,627 yuan per ton. Notably, the decline in the mid-grade M cotton was greater than that for high-grade SM cotton, and the price spread between domestic and imported cotton narrowed simultaneously.
However, this narrowing spread has not significantly increased the appeal of imported cotton. Amidst a strong bearish market sentiment, traders and mills remain notably cautious. The cost-performance advantage of imported cotton has not translated into a real increase in transaction volume, reflecting a lack of consensus in the market on the price floor.
Near-Term Outlook: Floor Unclear, Variables to Watch
Core logic currently suppressing cotton prices shows no signs of reversing. On the supply side, expectations for ample new-crop US cotton persist. On the macro front, a strong dollar and systemic downward pressure on commodities continue. On the demand side, the recovery of domestic textile consumption is sluggish. The Zhengzhou cotton futures, spot market, and imported cotton are likely to continue their weak and volatile trend.
The industry must closely track three key variables: changes in US cotton-growing weather that could impact actual yields, the timing of a substantial recovery in domestic textile end-user orders, and the fluctuation pattern of the RMB exchange rate. Only when these variables provide directional improvements might the market break its current weakening pattern and find a true bottom.