The cotton market is undergoing an extreme tug-of-war between bulls and bears. On June 23, the main contract of Zhengzhou Cotton Futures closed at 15,905 yuan per ton, breaching the critical psychological level of 16,000 yuan, which the industry views as a dividing line between bullish and bearish territory. Sentiment among short-sellers rapidly intensified. For textile mills, this price breakdown means the window for raw material procurement decisions is narrowing—continuing to wait risks missing the bottom, but active position-building carries the risk of unclear downstream demand.
Domestic and international markets resonate, weakness spreads from futures to spot
Zhengzhou's breach was not an isolated event. On June 23, the ICE cotton main contract also fell, closing at 78.59 cents per pound, a single-day decline of 1.03%. The direct cause of the external market decline was a loosening of supply expectations—US cotton planting progress is nearing completion, and the market has raised its production forecast for the new season. Simultaneously, a stronger US dollar suppressed the valuation of dollar-denominated commodities, leading to capital outflows from the cotton market.
This bearish sentiment quickly transmitted to China's imported cotton ports on June 24. Quotations for imported cotton across major ports saw a broad, modest decline. The SM grade international cotton price index was converted to a delivery price of 14,961 yuan per ton, while the M grade was 14,627 yuan per ton. Notably, the decline in medium-grade M cotton (0.72 cents/lb) was steeper than that in high-grade SM cotton (0.59 cents/lb), narrowing the domestic-import cotton price spread. This means that the cost advantage of imported cotton did not expand significantly despite the price drop, prompting buyers to prefer domestic resources at the same spread, further limiting the liquidity of imported cotton.
The spot market also lacked highlights. The domestic 3128B cotton price index stood at 17,631 yuan per ton, down only 1 yuan. While this suggests some price resilience on the surface, the more critical issue is transaction volume. Downstream textile mills have seen order recovery fall short of expectations, with finished goods inventory piling up. Procurement remains limited to small, need-based replenishment, with very low willingness for bulk purchases. The spot market cannot form effective price support, leading to a stalemate where prices do not fall but no one is willing to take delivery.
Weak demand is the core contradiction, unlikely to resolve in the short term
The core logic suppressing cotton prices is not a single factor but the combination of supply expectations, macro pressure, and weak demand. Among these, the slow pace of demand recovery is the variable least likely to improve in the short term.
Looking at the industrial transmission chain, the recovery of end-consumer apparel demand lags behind production. Domestic textile mills generally report that current orders are dominated by short-term, small-lot orders, with the proportion of long-term and large-scale reorders significantly lower than in previous years. This change in order structure is directly reflected in raw material procurement strategies: companies are no longer willing to build inventory for uncertain orders, compressing their inventory cycles to the limit.
For cotton traders, this means declining liquidity in the spot market. Even with futures prices breaking below 16,000 yuan per ton, the discount in the spot market has failed to stimulate downstream replenishment. The market needs not lower prices but more certain orders. Without a substantial improvement in end demand, cotton prices will struggle to gain sustained upward momentum.
Waiting for inflection signals from three key variables
In the short term, the cotton market is likely to continue its weak and volatile trend, lacking the momentum for a rebound. The industry needs to continuously track three key variables that could serve as triggers to break the current stalemate:
First, weather conditions in US cotton-growing regions. The new crop is in a critical growth phase. If extreme drought or flooding occurs, it could alter the market's expectation of ample supply, providing support for ICE cotton.
Second, the pace of recovery in domestic textile end-orders. The industry is currently in a traditional off-season, but the procurement window for autumn/winter orders (starting from September) is approaching. If orders are released in a concentrated manner at that time, it will directly drive demand for cotton.
Third, the direction of RMB exchange rate movements. A persistently strong US dollar puts downward pressure on imported cotton prices. However, if the RMB appreciates in stages, the converted cost of imported cotton will further decrease, potentially stimulating some enterprises' point-price procurement demand.