The fragility of the cotton market was laid bare on June 23. The main Zhengzhou Cotton contract fell intraday, ultimately breaching the key psychological support level of 16,000 yuan/ton, which the industry views as a bull-bear dividing line, closing at 15,905 yuan/ton, down 105 yuan for the day. This is not merely a technical breakdown but the result of a triple resonance of fundamental supply-demand weakness, macro sentiment, and supply chain transmission.
Futures Breakdown and Spot Weakness
The weakness in the futures market quickly transmitted to the spot market. On June 23, the domestic cotton 3128B price index stood at 17,631 yuan/ton, down only 1 yuan, but trading volumes and market sentiment showed a clear divergence. The recovery in orders for downstream textile mills has been far weaker than market expectations, leading to an accumulation of finished product inventories and a conservative procurement strategy. The market is characterized by small-lot, just-in-time replenishment, with a lack of large-scale stocking appetite, depriving the spot market of upward momentum. This pattern of 'futures down, spot following, quiet trading' indicates that pricing power is temporarily in the hands of bears.
For buyers, the relative firmness of spot prices (a premium of nearly 1,700 yuan/ton over futures) poses a hidden risk—if futures continue to decline, spot prices have room to fall, meaning current purchases could face inventory devaluation.
Concentrated Release of External Bearish Factors
The sources of pressure in the international market are more complex. The main ICE cotton contract settled at 78.59 US cents/lb, a single-day drop of 1.03%. Behind this are three overlapping bearish factors: the US cotton planting season is nearing completion, leading to expectations of a looser supply for the new crop, which suppresses price upside; the strengthening US dollar is weighing on the valuation of dollar-denominated commodities, causing capital outflows from agricultural markets; and a broad sell-off in global energy, grains, and financial assets is creating a systemic contagion effect.
The decline in US cotton was directly transmitted to China through import cost channels. On June 24, quotes for imported cotton at major Chinese ports saw a slight, broad-based decline. The International Cotton Price Index for SM grade (high quality) stood at 88.92 US cents/lb, translating to a duty-paid port price of 14,961 yuan/ton; the M grade (medium quality) stood at 86.99 US cents/lb, translating to 14,627 yuan/ton. Notably, the decline for M grade was larger (0.72 cents/lb) than for SM grade (0.59 cents/lb), reflecting weaker demand for lower-grade cotton.
Although the domestic-foreign price spread has narrowed, it has not boosted the appeal of imported cotton. The reason is that downstream yarn prices are under simultaneous pressure, and the processing profit margins for mills remain compressed, offsetting any cost advantage from imported cotton.
Path Judgment Under Dual Supply-Demand Weakness
The core logic suppressing cotton prices is unlikely to reverse in the near term. On the supply side, expectations of a larger US new crop persist; on the demand side, the recovery in domestic textile consumption is slow, with 'pulsed' improvements in terminal orders failing to translate into sustained growth. Crucially, the macro environment of a strengthening US dollar and broad commodity weakness leaves the cotton market without the external conditions for an independent rally.
Zhengzhou cotton, spot, and imported cotton are likely to continue their weak and volatile trend. A market rebound requires new catalysts: either extreme weather in US cotton regions disrupting output expectations, a significant surge in domestic textile terminal orders, or a change in the RMB exchange rate or monetary policy that favors import costs. Until then, any rally is likely to be viewed by bears as an opportunity to add short positions.