Cotton prices are caught in a tug-of-war between weak seasonal demand and tightening global supply expectations. This week, the average settlement price of Zhengzhou cotton futures was 15,869 yuan/ton, down 0.2% from the previous week, while the international cotton index (M) edged up 0.6% to 86.37 cents/lb, translating to an import cost of 14,337 yuan/ton. The domestic-international price spread narrowed to 3,140 yuan/ton but remains elevated, keeping cost pressure on Chinese textile mills.
Background
Global cotton supply and demand are sending conflicting signals. On the supply side, USDA data shows that as of June 21, 92% of the 2026/27 US cotton crop had been planted, with Texas at 90%, but the good-to-excellent rating is only 44%, still low despite improvement. A more impactful variable comes from India: the Ministry of Agriculture reports that monsoon rainfall is 43% below the historical average due to El Niño, with forecasts of continued weakness into early July. Since Indian cotton planting relies heavily on June-July monsoon rains, a sustained deficit could severely threaten new-crop production.
Meanwhile, the Middle East is showing signs of de-escalation. The US-Iran memorandum of understanding has temporarily opened the Strait of Hormuz for 60 days, with daily oil shipments recovering to about 4.8 million barrels and potentially freeing up 300,000 TEUs of container capacity. This alleviates container shortages and shipping bottlenecks, with international oil prices falling back to pre-conflict levels and ocean freight rates expected to decline. For textile mills relying on imported cotton, lower logistics costs are a welcome development.
Industry Impact
The domestic textile market is in its traditional off-season, with weak demand capping cotton price gains. The average price of domestic C32S carded yarn was 23,274 yuan/ton, up only 9 yuan/ton from the previous week, indicating weak downstream purchasing. Polyester staple fiber prices fell by 128 yuan/ton to 7,365 yuan/ton, strengthening the substitution effect against cotton and further diverting mill demand. Mills maintain low raw material inventories and are buying only on a need-to basis, reflecting cautious sentiment.
On the domestic cotton production front, Xinjiang's main producing areas have a squaring rate of 94-95%, with some fields beginning to bloom. Growth is generally on schedule or slightly ahead, but regional disparities are evident: northern Xinjiang has favorable water and heat conditions, while southern Xinjiang faces irrigation pressure due to high temperatures and increased evapotranspiration. No systemic production risk exists yet, but the impact of later-stage heat and irrigation on yields requires close monitoring.
Macro-level data provides support. National Bureau of Statistics data shows that profits of industrial enterprises above designated size grew 18.8% year-on-year in the first five months, with textile industry profits up 11.7%, demonstrating resilience. The central bank injected 200 billion yuan via MLF operations, ensuring ample liquidity and lower financing costs. These policy benefits are filtering into the real economy, providing a floor for the textile sector.
Overall, the cotton market's long-short battle is intensifying. The clash between short-term demand weakness and medium-term supply contraction will likely keep prices in a range-bound pattern. Weather uncertainties, domestic inventory drawdowns, and expectations of lower new-crop output offset the seasonal demand lull and polyester substitution.