The US dollar index, after three consecutive days of gains, suddenly weakened, directly easing the pressure on dollar-denominated international cotton markets. On June 25, the ICE主力 December contract settled at 76.97 cents per pound, up 0.93% from the previous session, after briefly touching a two-week low of 76.09 cents before rebounding sharply. This 'break first, then recover' pattern was not driven by a sudden improvement in fundamentals but by a confluence of short-term factors converging at a price trough.
Macro Sentiment Repair and Substitution Effect
The weaker dollar was the most direct macro catalyst for the rebound. Weaker-than-expected US inflation data reduced market expectations for further Fed rate hikes this year, causing the dollar index to fall. For non-US currency-denominated cotton importers, a weaker dollar means lower actual procurement costs, providing immediate support for futures prices.
Rising oil prices also amplified cotton's upward elasticity. Crude oil gained over 2% on the day, mainly due to heightened geopolitical tensions in the Middle East—an attack on a cargo ship off Oman raised concerns over navigation safety in the Strait of Hormuz. Higher crude oil prices increase polyester production costs, potentially shifting some textile demand toward natural fibers under the cotton-polyester substitution effect. This logic was quickly reflected in the futures market.
Technical Buying Diverges from Export Data
Notably, the rebound showed clear signs of technical positioning adjustments. A StoneX senior analyst noted that the previous day's sharp sell-off had triggered concentrated liquidation by speculative funds, and short-covering combined with bargain hunting jointly pushed prices higher. The 76-cent level was viewed by the market as a strong short-term support, with buyers willing to establish positions at that level.
However, the USDA export sales report released the same day painted a completely different picture. For the week ending June 18, current-crop U.S. upland cotton export sales were only 83,864 bales, down 53% from the previous week and 61% below the four-week average. Next-crop sales added 67,089 bales, for a combined 150,953 bales, but overall demand weakness persisted. Shipments rose 20% week-over-week, but shipments to China were only 12,248 bales, indicating a clear slowdown in Chinese buying at current price levels.
This divergence—futures rising while spot exports weaken—suggests the rebound was driven more by financial attributes than by genuine physical demand recovery. For textile mills, this means the sustainability of current price support is questionable.
Practical Implications for the Cotton-Textile Chain
From an industry perspective, the short-term stabilization of ICE cotton prices helps alleviate raw material cost anxiety for domestic cotton-textile enterprises, especially weaving mills that had delayed procurement due to consecutive price declines. They may now face a brief restocking window. However, given the sharp contraction in export data and no concurrent recovery in downstream orders, buyers should remain vigilant against a 'second dip' after a 'price hike to clear inventory' scenario.
The Cotlook A Index fell 250 points to 85.05 cents per pound on the same day, further widening the divergence between spot and futures markets. This indicates that international cotton merchants remain cautious about actual transaction prices, and the futures rebound has yet to effectively transmit to spot trading levels.