Cotton prices have reached a stalemate amid persistently misaligned signals between supply and demand. Public data from China Customs and futures exchanges show that the average settlement price of Zhengzhou cotton futures for the week of June 22-26 stood at 15,869 yuan/ton, down 0.2% from the previous week. Meanwhile, the import cost of the International Cotton Index (M) was calculated at 14,337 yuan/ton, leaving a domestic-import price gap of 3,140 yuan/ton. This gap indicates that the premium for domestic cotton in the global market has not narrowed due to weak demand but has instead been solidified by supply tightening expectations.
Supply Side: Weather and Policy Intertwine, Tightening Signals Persist
Support on the supply side comes from multiple directions. India's Ministry of Agriculture reported that as of the week ending June 21, monsoon rainfall was about 43% below the historical average, with meteorological departments predicting continued weak rainfall into early July. Indian cotton cultivation heavily depends on June-July monsoon precipitation; if it remains insufficient, the new season's cotton output could face severe threats. Meanwhile, the USDA reported that the quality rating for 2026/27 US cotton was only 44% good-to-excellent, though up 9 percentage points year-on-year. Planting progress in the core Texas region has just reached 90%, leaving future growth uncertain.
Geopolitical tensions in the Middle East have seen a temporary de-escalation. Following a US-Iran memorandum of understanding, the Strait of Hormuz has been reopened for 60 days, with daily oil transport volumes recovering to approximately 4.8 million barrels. This is expected to release about 300,000 TEUs of container capacity, alleviating earlier container shortages and berth congestion, and potentially reducing shipping freight rates. For textile mills relying on imported cotton, this means the logistics premium in import costs is shrinking, potentially opening a window for narrowing the domestic-import price gap.
Domestic cotton growth is progressing normally and slightly ahead of schedule, but regional disparities are evident. In Xinjiang's main production areas, the boll-setting rate is around 94-95%. Northern Xinjiang benefits from favorable hydrothermal conditions, while southern Xinjiang faces local irrigation pressure due to high temperatures and enhanced evapotranspiration. Inland cotton regions are mostly in the boll-setting to early flowering stages, with generally stable growth. Overall, there is no systemic risk of production decline, but the impact of later high temperatures and irrigation conditions on yields warrants ongoing monitoring.
Demand Side: Off-Season Effects and Substitute Pressure, Mills Turn Cautious
In contrast to the uncertainties on the supply side, the demand side presents clear signals of weakness. The average price of domestic C32S carded yarn was 23,274 yuan/ton, up only 9 yuan/ton from the previous week. The average price of major imported C32S carded yarn was 23,039 yuan/ton, flat from the prior week, making foreign yarn 235 yuan/ton cheaper than domestic yarn. Polyester staple fiber prices fell by 128 yuan/ton to 7,365 yuan/ton, further enhancing chemical fiber's substitution effect on cotton.
Textile mills' raw material inventory strategies are shifting subtly. Most enterprises are maintaining just-in-time procurement, reluctant to build stockpiles during the off-season. This cautious mentality reflects both concerns about the sustainability of end-user orders and a wait-and-see attitude due to the lack of a clear direction for cotton prices. According to the National Bureau of Statistics, from January to May, the total profit of industrial enterprises above designated size grew by 18.8% year-on-year, with the textile industry posting an 11.7% profit increase. However, this growth is more attributable to the lagged realization of earlier orders than to current off-season demand.
The central bank injected 200 billion yuan via increased MLF operations to ensure adequate liquidity, helping to lower financing costs in capital markets. However, the transmission of policy benefits to the textile sector takes time and is unlikely to reverse mills' cautious sentiment in the short term.
Market Outlook: Stalemate May Persist
The core contradiction in today's cotton market is the clash between short-term weak demand and medium- to long-term supply contraction. Demand is suppressed by the textile off-season and chemical fiber substitution, with mills only making just-in-time purchases. Supply is supported by global weather uncertainties, declining domestic inventories, and expectations of a year-on-year drop in new-season cotton output. This relatively balanced state of long and short forces makes it difficult for cotton prices to break out of their range-bound fluctuation.
For industry participants, the key is to identify inflection points. If India's monsoon rains fail to recover effectively in early July, it could become a trigger for upward price movement. Conversely, the decline in shipping freight rates following the US-Iran agreement could accelerate the narrowing of the domestic-import price gap, benefiting imported cotton procurement.