On June 25, ICE cotton futures rebounded after consecutive sell-offs, with the December contract settling at 76.97 cents/lb, up 0.71 cents or 0.93%. This price movement raises a critical question: can short-term technical repairs overshadow the structural contradictions in fundamentals?
Three Pillars of the Rebound
The rebound was driven by three factors. First, the U.S. dollar index fell, ending a three-day winning streak as economic data weakened expectations of Fed rate hikes. A weaker dollar reduces the cost of dollar-denominated cotton for non-dollar buyers, providing marginal support for export markets.
Second, bargain hunting emerged after the December contract hit a two-week low of 76.09 cents/lb. StoneX analysts noted strong support at current levels, with speculative funds adjusting positions after heavy selling. Such technical rebounds are common but their sustainability depends on subsequent supply-demand data.
Third, crude oil prices rose about 2% due to renewed Middle East tensions—a cargo ship was attacked near Oman, raising concerns about Strait of Hormuz shipping safety. Higher oil prices increase polyester fiber production costs, enhancing cotton's competitiveness as a substitute. This substitution effect is significant in textile raw material procurement decisions.
Export Data Reveals Deeper Concerns
On the same day as the price rebound, USDA export sales data told a different story. For the week ending June 18, current-crop U.S. upland cotton net sales were 83,864 bales, down 53% from the previous week and 61% below the four-week average. Next-crop sales added 67,089 bales, totaling 150,953 bales. Shipments were 300,155 bales, with only 12,248 bales destined for China.
This data indicates that despite lower prices attracting some buyers, global textile end-demand has not materially recovered. China, the world's largest cotton importer, has notably slowed purchases, reflecting downstream fabric mills still digesting inventories with limited new orders. The export sales decline suggests U.S. cotton inventory pressure may accumulate in coming weeks.
Transmission to Industrial Clusters and Procurement Adjustments
For domestic textile clusters like Keqiao and Shengze, ICE cotton fluctuations directly impact imported cotton costs. At 76-77 cents/lb, imported cotton costs roughly 13,500-14,000 yuan/ton, essentially on par with domestic 3128-grade cotton. This narrowing price spread weakens the cost advantage of imported cotton.
More notably, rising oil prices are altering the polyester-cotton price ratio. If crude remains elevated, polyester staple fiber prices may rise, prompting some mills to reassess their raw material mix and increase cotton usage. However, this substitution effect has a time lag and requires sustained high oil prices to form a trend.
Outlook and Recommendations
In the near term, ICE cotton has found technical support around 76 cents/lb, but upside is limited by weak export data. July-August marks the critical growing period for Northern Hemisphere cotton, where weather could become a new speculative theme. However, medium-term fundamentals remain bearish, with global textile and apparel consumption still sluggish and U.S. ending stocks projected to rise.