On June 23, the main Zhengzhou cotton futures contract breached the key psychological level of 16,000 yuan/ton during trading, ultimately closing at 15,905 yuan/ton, a single-day drop of 105 yuan. This is not a technical correction but a concentrated eruption of loose supply expectations and weak demand against a macro headwind background. On the same day, the main ICE cotton contract fell 1.03% to close at 78.59 cents/lb, triggering a synchronized decline in domestic and international markets and dragging imported cotton quotes lower. The cotton market is currently in a 'vacuum period' with multiple negative factors overlapping, leaving almost no short-term upward momentum.
The Price Transmission Chain Under Dual Supply-Demand Pressure
Breaking down from both supply and demand sides, the core drivers of this decline come from three layers. First, on the supply side, US cotton planting progress is nearing completion, and the market has continuously raised its expectations for new season production, essentially confirming a loose supply pattern. Second, on the macro level, a strengthening US dollar directly suppresses the valuation of dollar-denominated commodities, compounded by a broad sell-off in global energy, grains, and financial assets, accelerating capital outflows from the cotton market. Third, on the domestic demand side, the recovery pace of orders for downstream textile mills has been significantly slower than expected, with finished product inventories piling up heavily. Corporate procurement strategies have fully shifted to 'on-demand small batch replenishment,' with bulk purchasing willingness dropping to freezing point.
This dual-supply-demand pressure pattern makes the price transmission chain exceptionally clear: external decline → imported cotton quote reduction → narrowing domestic-international price spread → domestic spot price decline → pressure on Zhengzhou exchange. On June 24, imported cotton quotes at major ports fell across the board, with SM-grade delivery prices reported at 14,961 yuan/ton and M-grade at 14,627 yuan/ton. The decline in mid-grade M cotton (0.72 cents/lb) was greater than that in high-grade SM cotton (0.59 cents/lb), reflecting a more pessimistic market outlook for mid-to-low quality cotton.
Industrial Cluster Response: Order Coldness from Keqiao to Shengze
The transmission effect of this price fluctuation on downstream industrial clusters has already emerged. In textile clusters represented by Keqiao in Shaoxing and Shengze in Wujiang, the growth in end-order volumes has notably slowed recently. Loom operating rates at weaving mills remain at 60-70%, with some small and medium-sized factories proactively reducing production due to profit inversion. Cotton yarn traders generally report that client inquiry frequency has dropped and transaction cycles have lengthened; even price cuts fail to stimulate effective demand release.
This 'the lower it goes, the less we buy' wait-and-see mentality essentially reflects the market's collective judgment that the price bottom has not yet been confirmed. Historical experience shows that when Zhengzhou cotton falls below 16,000 yuan/ton, it often accompanies a destocking cycle. However, the speed and depth of this cycle will depend on whether end-consumer demand can show substantial recovery before the traditional peak season in September-October.
Three Key Variables Determine Future Direction
The core logic currently suppressing cotton prices shows no signs of reversal, but the market is not without turning points. The resolution of the current downturn will depend on the evolution of three key variables.
First, weather conditions in US cotton regions. If extreme weather events like drought or hurricanes occur during the critical growth period of new cotton, the loose supply expectation could be rapidly revised, triggering short-covering rallies. Second, the pace of recovery in domestic textile end orders. The destocking process in major overseas consumer markets (Europe and the US) is nearing completion; if restocking demand materializes as expected in Q3, it will directly boost cotton yarn procurement. Third, the trend of the RMB exchange rate. Although a strong US dollar suppresses external prices, a phased depreciation of the RMB would partially offset the cost pressure of imported cotton, benefiting domestic textile exporters.
In the short term, Zhengzhou cotton, spot prices, and imported cotton are likely to continue their weak and volatile trend, with the 16,000 yuan/ton level transforming from support to resistance. The industry must patiently wait for new favorable drivers from the supply-demand side to break the current sustained weakness.