On June 23, the main Zhengzhou cotton futures contract breached the critical psychological threshold of 16,000 yuan/ton, closing at 15,905 yuan/ton, down 105 yuan from the previous settlement. This breakdown reflects not only concentrated bearish sentiment but also deep contradictions across the cotton supply chain: ample supply expectations combined with macro headwinds, while demand recovery falls far short of expectations. The supply-demand weakness is unlikely to reverse in the short term.
Background: Coordinated Decline in Domestic and International Markets
On that day, China's commodity markets broadly weakened, with the cotton sector hit hardest. Zhengzhou cotton futures fell under short-covering pressure, breaking through the 16,000 yuan/ton level in the afternoon. The spot market showed similar weakness: the domestic 3128B cotton price index stood at 17,631 yuan/ton, down only 1 yuan, but trading was thin. Downstream spinners showed little buying interest, limited to small replenishment for immediate needs, with no bulk purchases in sight.
Internationally, the ICE cotton futures contract also came under pressure, closing at 78.59 cents/lb, down 1.03%. Bearish factors converged: U.S. cotton planting neared completion, raising expectations of a ample new-crop supply; the U.S. dollar index strengthened, weighing on dollar-denominated commodities; and a broad selloff in global energy, grains, and financial assets triggered systemic capital outflows from cotton markets.
The external decline quickly transmitted to Chinese ports. On June 24, import cotton offers edged down across the board. The international cotton price index for SM grade fell 0.59 cents/lb, translating to a duty-paid port price of 14,961 yuan/ton; the M grade fell 0.72 cents/lb to 14,627 yuan/ton. Notably, the M grade fell more than SM, indicating stronger bearishness on medium-quality cotton. Although the domestic-import spread narrowed, import cotton's appeal did not improve due to weak domestic demand.
Industry Impact: Slow Order Recovery and Upstream Destocking Pressure
At the core of current cotton prices lies demand weakness. Downstream textile and apparel order recovery has been far more tepid than optimistic expectations earlier this year. Weaving mills are saddled with finished goods inventories, forcing some smaller players to cut operating rates. Their procurement strategy is ultra-conservative, limited to minimum replenishment for production, avoiding any speculative stock building.
This 'hand-to-mouth' buying pattern means the spot market lacks bulk deal support. Even with Zhengzhou cotton breaking below 16,000, the spot price index fell only 1 yuan, reflecting a standoff between upstream ginners unwilling to sell below cost and downstream mills waiting for clearer price signals.
Externally, a stronger dollar continues to pressure import cotton. The renminbi's recent depreciation further raises the actual landed cost for import-dependent coastal mills. Although the domestic-import spread has narrowed, the combined exchange rate cost means imported cotton offers no clear cost advantage, curbing port transaction volumes.
Outlook: Weak Oscillation Until Three Catalysts Emerge
Overall, the core logic suppressing cotton prices shows no sign of reversal. The ample U.S. new-crop supply outlook will persist unless extreme weather hits key growing regions. The macro headwinds of a stronger dollar and broad commodity weakness are unlikely to fade soon. Domestically, textile consumption recovery depends on retail data, which has shown slowing growth for two consecutive months, with destocking pressure feeding upstream.
Zhengzhou cotton, spot, and import prices are likely to continue oscillating weakly, with the 16,000 yuan/ton level potentially transforming from support into resistance. The market lacks near-term bullish catalysts. Industry attention should focus on three key variables:
- U.S. cotton weather: drought or flooding during the growing season could tighten supply expectations.
- Domestic textile orders: the timing and strength of the autumn/winter stocking season will determine downstream replenishment pace.
- Renminbi exchange rate: a period of stabilization could ease import cost pressures.
Until clear supply-demand catalysts emerge, the cotton market will likely remain in a 'low-volume, weak-oscillation' pattern. All chain participants should maintain lean inventories to navigate price volatility.