On June 23, the main ZCE cotton futures contract broke through the key 16,000 yuan/ton psychological level, closing at 15,905 yuan/ton, down 105 yuan from the previous settlement. This breach marks the end of the consolidation range since Q4 2023 and a significant escalation in bearish sentiment.
Dual Pressure from Macro and Fundamentals
The decline is not driven by a single factor. On the macro front, a strengthening US dollar has systematically pressured dollar-denominated commodities. The ICE cotton main contract closed at 78.59 cents/lb, down 1.03%, with clear capital outflows. Meanwhile, global energy, grain, and financial assets all weakened, placing the cotton market in a broader risk-off environment.
Fundamentally, US cotton planting is nearly complete, and the market expects a looser supply balance for the new season. This long-term supply pressure, combined with a strong dollar, has compressed cotton valuations. The external weakness quickly transmitted to Chinese ports, with imported cotton quotes edging down on June 24. The SM grade (high quality) converted to 14,961 yuan/ton, while the M grade (mid-quality) stood at 14,627 yuan/ton. Notably, the M grade fell more than SM, narrowing the domestic-import spread without stimulating buying interest.
Weak Downstream Demand as the Core Drag
If macro and supply headwinds are external shocks, the persistently weak downstream textile demand is the market's core ailment. The domestic 3128B cotton index was at 17,631 yuan/ton, down only 1 yuan, reflecting a stalemate in the spot market.
Textile mills report slower-than-expected order recovery and rising finished goods inventories. Procurement is limited to small, need-based replenishment, with no bulk buying appetite. This wait-and-see attitude amplifies the downward price momentum. The transmission chain from apparel consumption to yarn to cotton remains inefficient, with inventory pressure cascading upstream.
Near-Term Outlook: Weak and Range-Bound, Awaiting Catalysts
Overall, the core logic suppressing cotton prices is unlikely to reverse in the near term. On the supply side, the US new-crop output expectation is already loose; absent extreme weather, this pressure will persist. On the demand side, domestic textile consumption lacks a strong catalyst, and export orders face headwinds from overseas destocking and FX volatility.
A meaningful rebound would require at least one of the following: a credible US crop threat, a sustained improvement in domestic textile orders, or a trend appreciation of the RMB to lower import costs. Until then, ZCE, spot, and imported cotton are likely to remain weak.