The cotton market lost a key psychological level on June 23, with the main Zheng Cotton contract closing at 15,905 RMB/ton, falling below the 16,000 RMB/ton threshold, down 105 RMB in a single day. This price level not only signals a collapse in long-side confidence on the exchange but also reflects that the entire cotton-textile chain—from upstream planting to downstream weaving—is undergoing a round of systemic stress testing.
Synchronized weakness across domestic and international markets
Zheng Cotton's decline was not an isolated event. On the same day, the main ICE cotton contract closed at 78.59 US cents/lb, down 1.03%, and the external decline directly transmitted to China's import cotton market. On June 24, import cotton quotations at major ports fell across the board. The international cotton price index for SM grade was converted to a delivery price of 14,961 RMB/ton, and M grade to 14,627 RMB/ton. The decline in M grade was even larger than in SM grade, suggesting that market pessimism is more concentrated on mid-quality cotton.
Three layers of logic underpin the pressure on external markets: US new-season cotton planting is near completion, with the market generally raising production expectations, releasing continuous signals of loose supply; the strengthening US dollar is weighing on dollar-denominated commodity valuations, accelerating capital outflows from the cotton market; and a collective decline in global energy, grains, and financial assets forms systemic drag, making it difficult for cotton to buck the trend. None of these factors show signs of reversal in the short term.
Weak spot market support, downstream procurement turns conservative
The spot market also shows little improvement. The domestic cotton 3128B price index was reported at 17,631 RMB/ton, down only 1 RMB, but this stability is not due to demand support—rather, it reflects passive price rigidity from sellers. The real problem lies on the demand side: downstream textile enterprises report that order recovery has fallen short of expectations, finished product inventories are accumulating, and procurement strategies have shifted from 'opportunistic replenishment' to 'small-batch purchases on demand.' The lack of willingness to build large inventories means that even if prices fall further, it will be difficult to trigger effective buying.
This negative feedback loop—'the more prices fall, the less people buy'—exerts continuous downward pressure on cotton prices. From an industry logic perspective, textile mills' raw material procurement decisions no longer depend on absolute price levels but on the certainty of end-user orders and the speed of finished product inventory destocking. Without a substantial recovery signal from downstream weaving and apparel exports, it will be difficult for cotton prices to gain effective support from the demand side.
Import cotton advantage narrows, but procurement appeal does not increase
After the import cotton price adjustment, the domestic-international price spread has narrowed. At current conversion prices, the M-grade import cotton delivery price is 14,627 RMB/ton, compared with the domestic 3128B index of 17,631 RMB/ton, a spread of about 3,000 RMB/ton. Theoretically, import cotton has a clear price advantage, but in practice this advantage has not translated into incremental orders. Reasons include: insufficient downstream orders reducing absolute raw material demand; shipment and exchange rate risks increasing procurement uncertainty; and some mills having rigid demand for domestic cotton due to product certification and customer requirements.
Another implicit signal from the narrowing spread is that international pricing for mid-quality cotton is accelerating its return to fundamental supply-demand balance, while domestic spot prices remain relatively firm due to cost support and seller reluctance. This structural divergence in spreads is unlikely to boost import cotton transaction volumes in the short term.
Short-term rebound conditions absent, focus on three variables
The core logic suppressing cotton prices—loose supply expectations, a strong US dollar, and weak downstream consumption—shows no signs of reversal. Zheng Cotton, spot, and port import cotton are likely to continue their weak and volatile trend, with insufficient market rebound momentum.
From a trading perspective, the breach of the 16,000 mark has further intensified bearish sentiment on the exchange, and long-position stop-losses and hedging pressure may exacerbate short-term volatility. However, it should be noted that current prices have already partially absorbed the bearish expectations, and the potential for further significant downside is constrained by cost support and the possibility of policy-driven reserve purchases.
The industry needs to continuously track three key variables:
- Weather conditions in US cotton regions: If major producing areas experience drought or extreme weather, it could reverse the loose supply expectation and trigger an external market rebound.
- Domestic textile end-user orders: Especially the pace of replenishment in European and American markets and the return of orders from Southeast Asia—this is the core of whether demand can improve.
- RMB exchange rate trend: If the RMB depreciates, it will increase the cost of imported cotton, narrow the domestic-international spread, and indirectly support domestic cotton prices.
Until new favorable drivers emerge on either the supply or demand side, the cotton market will likely maintain a weak and volatile pattern. Industry participants should prioritize inventory risk control.