While the market was still digesting the previous day's sharp sell-off, cotton futures found support quickly on June 25. The ICE December contract hit a two-week low of 76.09 cents per pound before rebounding to settle at 76.97 cents, up 0.93%. This bounce appears technical on the surface, but behind it lies a fragile balance among the US dollar, geopolitical risks, and industry fundamentals.
Three Drivers of the Price Bounce
The weaker dollar was the primary variable. After three consecutive days of gains, the US dollar index fell on June 25. The latest US inflation data came in below expectations, weakening market bets on a Fed rate hike this year. For overseas buyers holding non-dollar currencies, dollar-denominated cotton became relatively cheaper, providing immediate support to futures.
Meanwhile, technical factors also played a role. A senior vice president at StoneX noted that the previous day's heavy sell-off triggered speculative capital to exit, and when prices fell near 76 cents, buyers saw a reasonable entry point. This bargain buying reflected short-term trading strategies rather than improved demand.
Rising oil prices indirectly boosted cotton prices through substitution effects. Crude oil rose more than 2% on the day, driven by concerns over Middle East supply recovery after a cargo ship was hit near Oman. Higher oil prices increase the cost of polyester fiber, a crude oil derivative, enhancing cotton's relative competitiveness.
Export Data Reveals Weak Demand
In contrast to the short-term futures rebound, USDA export sales data was not optimistic. For the week ending June 18, current-crop US upland cotton net sales were 83,864 running bales, down 53% from the previous week and 61% below the four-week average. Although next-crop sales added 67,089 bales, total net sales were only about 150,000 bales. Shipments rose 20% week-on-week, with 12,248 bales to China, but overall demand momentum remained weak.
This data suggests the price bounce was more a short-term sentiment repair in financial markets than a genuine recovery in consumption. If downstream textile mills' purchasing appetite does not improve substantially, the sustainability of the rebound is questionable.
Industry Impact: Short-Term Games vs. Long-Term Contradictions
For domestic textile enterprises, ICE cotton fluctuations directly affect imported cotton costs. The renminbi is closely linked to the US dollar, so a weaker dollar helps reduce import costs. However, geopolitical oil price volatility indirectly impacts substitution demand through polyester prices.
From an industrial cluster perspective, Keqiao and Shengze, which focus on chemical fiber fabrics, may face rising polyester raw material costs in the short term due to higher oil prices. Meanwhile, Nantong and Shandong, concentrated in cotton spinning, are more concerned about how external cotton price volatility affects order profitability. Although the cost transmission paths differ, both point to one conclusion: raw material volatility is accelerating from the financial level to the production side.