Domestic cotton prices in China are hovering around 15,800 yuan/ton, with imported cotton cost inversion exceeding 3,000 yuan, putting textile mills in a procurement dilemma. According to the China Cotton Market Weekly report for June 22-26, the average settlement price of the Zhengzhou Cotton Futures main contract was 15,869 yuan/ton, down 0.2% from the previous week. Meanwhile, the International Cotton Index (M), representing import parity, stood at 14,337 yuan/ton, leaving a domestic-import spread of 3,140 yuan/ton.
Supply Side: Global Weather Gambit Intensifies
The expectation of tightening global cotton supply is providing a floor for prices, but weather narratives across key producing regions diverge significantly. India's monsoon rainfall is 43% below the historical average, with forecasts suggesting weak precipitation through early July—a direct threat to the upcoming planting season. India's cotton crop relies heavily on June-July monsoon rains, and a sustained deficit could lead to substantial production cuts.
In the U.S., 2026/27 cotton planting has reached 92% completion, with Texas at 90%. However, the crop condition rating is only 44% good-to-excellent, up 9 percentage points year-on-year but still low. Notably, drought conditions in the U.S. have eased recently, partially reducing the weather premium. Domestically, Xinjiang's main cotton areas report a squaring rate of 94-95%, with northern Xinjiang enjoying favorable water and heat conditions, while southern Xinjiang faces localized irrigation stress due to high temperatures.
While there is no systemic production risk currently, the regional divergence in crop conditions introduces yield uncertainty. For buyers, this means persistent raw material cost volatility.
Demand Side: Off-Season Blues and Synthetic Substitution
The impact of the traditional off-season in textiles is deepening. Domestic C32S combed yarn averaged 23,274 yuan/ton, up only 9 yuan/ton week-on-week, while polyester staple fiber prices fell 128 yuan/ton to 7,365 yuan/ton, strengthening cotton's substitution by synthetics. Mills maintain low raw material inventories but remain cautious, limiting purchases to essential restocking.
Weak downstream orders are directly reflected in yarn prices. Imported yarn is 235 yuan/ton cheaper than domestic yarn, forcing domestic mills to adjust product mixes. From a chain perspective, high cotton prices coupled with sluggish end-demand are compressing margins across intermediate links.
Macro Variables: Shipping Recovery and Monetary Policy
Geopolitical tensions in the Middle East have eased temporarily. Following a US-Iran memorandum of understanding, the Strait of Hormuz is gradually reopening, with daily oil transit recovering to about 4.8 million barrels, potentially freeing up 300,000 TEUs of container capacity. This could alleviate container shortages and high freight rates, reducing imported cotton's landed costs.
Domestically, the central bank injected 200 billion yuan via MLF operations to ensure ample liquidity. National Bureau of Statistics data shows that from January to May, profits of industrial enterprises above a designated size rose 18.8% year-on-year, with textile industry profits up 11.7%, demonstrating some resilience, though profit growth stems more from cost control than demand expansion.
Market Outlook: When Will the Stalemate Break?
In the short term, cotton prices will likely remain range-bound. Supply-side support comes from global weather uncertainty, domestic inventory drawdowns, and expectations of lower new-crop output. Demand-side pressure stems from the textile off-season and increased synthetic substitution. Neither bulls nor bears have sufficient momentum to break the equilibrium.
Medium-term, three variables warrant attention: India's final monsoon outcome, changes in U.S. crop conditions, and the pace of domestic inventory depletion before the new crop arrives. If India's production cuts materialize or domestic output falls more than expected, prices could break higher. Conversely, sustained weak demand and accelerated synthetic substitution would increase downside risks.