The cotton market faced a concentrated stress test in late June. The main contract of Zhengzhou cotton futures broke below the key psychological level of 16,000 yuan per ton, closing at 15,905 yuan, down 105 yuan from the previous trading day. This is not merely a breach of a round number; it is a confirmation that market sentiment has shifted from caution to pessimism as both supply and demand weaken simultaneously.
Futures and Spot: Parallel Weakness, Different Rhythms
The futures market reacted more directly than the spot market. On June 23, the entire domestic commodity complex declined, with the cotton sector falling particularly sharply. The main Zhengzhou contract traded lower throughout the session, closing below the 16,000 mark with visible short-side accumulation. On the spot side, the 3128B price index stood at 17,631 yuan per ton, down only 1 yuan, appearing stable. But the real signal was the shrinking volume. Downstream textile mills reported that order recovery fell well short of expectations, with finished product inventories piling up to near three-month highs. Procurement strategy has shifted from 'hand-to-mouth' to even more conservative 'small batch replenishment on demand.'
The apparent divergence—futures falling while spot holds—actually reflects a liquidity vacuum. Spot prices have not yet caught up with the futures decline, but once futures continue to fall, spot prices will follow. For traders holding inventory, the biggest risk is not price volatility but a market with no buyers.
External Transmission: ICE Cotton's Triple Blow
International pressure was more systematic. The ICE cotton main contract closed at 78.59 cents per pound, down 1.03% on the day. The decline was driven not by a single factor but by a confluence of three headwinds:
- Higher new-crop output expectations: US cotton planting is nearly complete, with generally favorable weather in key growing regions, reinforcing expectations of ample supply in the new season.
- A stronger US dollar: Dollar appreciation directly lowers the valuation of dollar-denominated commodities, and cotton is no exception, with capital outflows intensifying.
- Systemic commodity weakness: Energy, grains, and financial assets all weakened simultaneously, driving risk-off sentiment and draining funds from the cotton market.
The external decline quickly transmitted to Chinese ports on June 24. Import cotton quotes fell across the board. The Cotlook A Index (SM grade) dropped 0.59 cents to 88.92 cents per pound, equivalent to a landed duty-paid price of 14,961 yuan per ton. The M grade fell 0.72 cents to 86.99 cents per pound, equivalent to 14,627 yuan per ton. Notably, the M grade fell more than the SM grade, suggesting the market is prioritizing absolute price over quality premiums.
Narrowing Spread: Why Import Cotton Isn't Attractive
Theoretically, lower import quotes and a narrowing domestic-import spread should stimulate import buying. But in reality, there is no rush to bottom-fish. The reason lies in the demand side: textile mills are not facing a price problem but an order problem. End-brand apparel companies are placing orders cautiously, foreign trade orders are slow to recover due to overseas destocking cycles, and yarn prices are following cotton lower, squeezing mill margins. Mills have no incentive to build raw material inventories.
This means the 'price advantage' of imported cotton is currently ineffective. Only when end-order demand genuinely recovers will the lower import prices trigger real buying. Until then, it remains a paper advantage.
Short-Term Outlook: Three Variables to Watch
The core logic suppressing cotton prices is unlikely to reverse in the short term. The expectation of ample new-crop supply will persist at least until harvest. The strong dollar cycle is not over. Domestic textile consumption recovery is slow. The market will likely remain weak and volatile, requiring a new catalyst for a rebound.
- US cotton belt weather: Extreme weather such as drought or hurricanes could quickly revise supply expectations—this is the most likely trigger for a rebound.
- Domestic textile orders: Watch for the traditional August-September peak season procurement; signals are currently weak.
- RMB exchange rate: If the yuan depreciates, import cotton costs rise, which could provide some support to domestic futures but also increase costs for mills.