Cotton prices remain locked in a narrow range as supply-side uncertainties clash with tepid demand. Zhengzhou cotton futures averaged 15,869 yuan/ton this week, down just 25 yuan, while the Cotlook M Index edged up 0.6% to 86.37 cents/lb. The domestic-international price spread narrowed slightly to 3,140 yuan/ton, but Chinese cotton still commands a significant premium over imports—reshaping downstream purchasing strategies.
Supply Side: Triple Uncertainty Underpins the Floor
Global supply contraction fears are grounded in real data. USDA data shows 2026/27 US cotton planting reached 92%, with Texas at 90%, but the crop condition rating stands at just 44%—improved year-on-year but still historically low. More concerning is India: the Ministry of Agriculture reports monsoon rainfall 43% below the historical average, and July precipitation is forecast to remain weak. Since Indian cotton relies heavily on June-July rains, a sustained deficit could severely impact next season's output—the biggest wildcard for global supply.
Domestically, Xinjiang's cotton squaring rate has hit 94-95%, but conditions vary sharply: northern Xinjiang enjoys favorable moisture and temperature, while southern Xinjiang faces irrigation stress from prolonged heat and evapotranspiration. Although overall growth is normal to slightly ahead of schedule, concerns over late-stage high temperatures and irrigation capacity persist, reinforcing expectations of lower new-crop output and providing a price floor.
Demand Side: Off-Season Blues and Synthetic Substitution
Demand signals are clearer—and weaker. The textile industry is in its traditional off-season, with mills maintaining minimal inventories and only purchasing on a need-to basis. Domestic C32S carded yarn averaged 23,274 yuan/ton, up a marginal 9 yuan, while polyester staple fiber fell 128 yuan to 7,365 yuan/ton, enhancing substitution pressure on cotton. The 3,140 yuan/ton domestic-import spread makes imported cotton far more cost-effective, further depressing demand for domestic fiber. Imported yarn is also 235 yuan/ton cheaper than domestic equivalents, underscoring the cost disadvantage of China's textile chain.
Macro Shifts: Middle East Détente Signals Freight Relief
A notable macro development this week: the US-Iran memorandum has temporarily opened the Strait of Hormuz for 60 days, with daily oil transit recovering to ~4.8 million barrels. Industry estimates suggest this could free up ~300,000 TEUs of container capacity, easing previous shortages and high freight rates. For textile exporters, logistics costs may see near-term relief.
On the monetary front, the PBOC injected 200 billion yuan via MLF operations to maintain ample liquidity. NBS data shows industrial profits up 18.8% YoY in Jan-May, with textile profits rising 11.7%—resilience driven more by cost control than demand expansion.
Outlook: Range-Bound Until a Catalyst Emerges
The cotton market remains in a tug-of-war. Near-term demand is capped by the off-season and synthetic substitution, with mills unwilling to build inventory. Medium-term, supply risks from weather, destocking, and expected lower Chinese output limit downside. The stalemate is likely to persist until a catalyst emerges—either a worsening Indian monsoon triggering supply shock, or seasonal demand recovery prompting restocking.