The cotton market reached a milestone on June 23: the main Zhengzhou cotton futures contract broke through the key psychological level of 16,000 yuan/ton during trading, closing at 15,905 yuan/ton. What was once seen as a bullish bottom line has now become a new starting point for bears.
Dual Pressure from Domestic and International Markets
On that day, China's commodity markets broadly weakened, with the cotton sector among the worst performers. The main Zhengzhou contract fell 105 yuan from the previous settlement price, with open interest increasing on the short side. The spot market also struggled to hold up: the 3128B grade cotton price index stood at 17,631 yuan/ton, down only 1 yuan, but thin trading volumes reflected weak real demand.
Internationally, the main ICE cotton contract fell to 78.59 cents per pound, a daily decline of 1.03%. The drop was driven by three factors: expectations of a bountiful new US crop as planting nears completion; a strengthening US dollar, which weighed on dollar-denominated commodity valuations; and a broad sell-off in global energy, grains, and financial assets, prompting capital outflows from the cotton market.
The weakness abroad quickly transmitted to Chinese ports. On June 24, import cotton quotations edged down across the board. The SM grade international cotton price index fell to 88.92 cents per pound, equivalent to a duty-paid port price of 14,961 yuan/ton. The M grade index dropped to 86.99 cents per pound, translating to 14,627 yuan/ton. Notably, the decline in M grade was larger than in SM grade, suggesting that the market's premium for quality is also shrinking.
Supply Chain Transmission: No Sign of Demand Recovery
The direct cause of the price decline is persistent weakness on the demand side. Downstream textile mills are seeing slower-than-expected order recovery, with finished product inventories still accumulating. Purchasing remains limited to small, need-based replenishment, and there is little appetite for bulk stocking. This "buy on strength, not on weakness" mentality is amplified during downturns, preventing the spot market from forming effective support.
Although the spread between domestic and international cotton prices has narrowed, this has not boosted the appeal of imported cotton. For textile mills, falling raw material prices have not translated into wider profit margins, as finished product prices are also under pressure. The entire supply chain is caught in a negative feedback loop of "price cuts to destock."
Short-Term Headwinds Persist; Watch Three Key Variables
The core logic weighing on the cotton market is unlikely to reverse in the short term. On the supply side, expectations of a ample new US crop and generally favorable weather in South America suggest global cotton inventories could accumulate further. On the macro front, the strong dollar will continue to pressure commodity markets. On the demand side, the recovery in domestic textile consumption is slow, and overseas orders have not shown significant improvement.
The Zhengzhou futures, spot, and import cotton markets are likely to remain in a weak, range-bound pattern. The industry should monitor three key variables:
- US cotton belt weather: extreme drought or hurricanes could alter supply expectations
- Domestic textile orders: the start of the autumn order season is a critical demand signal
- RMB exchange rate: a weaker yuan would raise import costs, potentially supporting domestic prices
Only if these variables deliver positive surprises can the market break its current weak pattern. Until then, any rebound is likely to be a short-covering rally rather than a sustainable upturn.