On June 23, the Zheng cotton main contract broke through the psychological threshold of 16,000 yuan/ton, closing at 15,905 yuan/ton, down 105 yuan from the previous settlement. This level was previously seen by the industry as a short-term bull-bear divide; its loss signals a shift from caution to pessimism. The same day, ICE cotton closed at 78.59 cents/lb, down 1.03%, and the decline quickly transmitted to domestic ports, with import quotations edging lower on June 24.
This decline is not an isolated event but the result of multiple factors resonating across domestic and international markets, futures and spot, macroeconomics and industry. For buyers, mills, and trading firms along the textile chain, the current price level represents both a risk and a potential opportunity.
Futures and Spot: Prices Fall but Volumes Don’t Surge
After the Zheng contract broke 16,000 yuan/ton, the spot market did not see panic selling. The domestic 3128B index stood at 17,631 yuan/ton, down just 1 yuan, reflecting some holding sentiment among sellers. However, the reaction from downstream textile mills is more critical: order recovery is slower than expected, and finished goods inventories are piling up, shifting procurement strategy from 'stocking up' to 'buy-as-needed.'
- Mill operating rates remain low, with some small and medium mills voluntarily cutting production
- Cotton yarn inventory days have risen above 25, increasing working capital pressure
- Purchases are scattered and small-lot, typically under 10 tons per order
This means spot market liquidity is shrinking; even falling prices fail to stimulate large volumes. Under a supply-demand stalemate, prices lack upward elasticity, but downside is also limited by cost support.
External Bearish Factors Concentrate, Import Cotton Attractiveness Drops
The logic behind ICE cotton’s decline is clearer: US cotton planting is nearly complete, with upward revisions to new-season production expectations setting a tone of ample supply. Combined with a strengthening US dollar, dollar-denominated commodities broadly suffer, and capital continues to exit the cotton market. On June 23, ICE cotton fell 1.03%, directly pushing down domestic port import quotes on June 24.
Specifically, the SM grade import parity price was 14,961 yuan/ton, and the M grade was 14,627 yuan/ton. Notably, the M grade fell more (0.72 cents/lb) than the SM grade (0.59 cents/lb). Although the domestic-import spread narrowed, import cotton’s cost advantage did not expand, as domestic prices also declined and downstream preference for higher grades dampened M grade demand.
Short-Term Drivers: Weather, Orders, and Exchange Rate
No reversal signal has emerged for the core logic suppressing cotton prices. The supply surplus expectation for the new US season, a strong dollar, and systemic weakness in commodities remain, while domestic downstream consumption recovery is slow, offering little demand support. However, three key variables deserve close monitoring:
First, US cotton belt weather. After planting, growing-season weather will directly impact yield expectations. Extreme drought or flooding in major producing areas could trigger supply-side speculation, providing temporary rebound momentum for external markets.
Second, domestic textile end orders. Currently in the traditional off-season, the preparation period for autumn/winter orders (September-October) will begin around August. If orders pick up, it will directly improve mill procurement willingness, breaking the current wait-and-see stalemate.
Third, the CNY exchange rate. If the yuan depreciates amid a strong dollar, import cotton costs in yuan will rise, narrowing the domestic-import spread and protecting domestic cotton prices. Conversely, if the yuan appreciates, import cotton becomes more competitive, further pressuring domestic demand.