The US dollar index suddenly reversed after three consecutive days of gains, directly triggering a technical rebound in ICE cotton futures. On June 25, the December contract settled at 76.97 cents per pound, up 0.71 cents from the previous session, after hitting a two-week low of 76.09 cents intraday. While this appears to be a price repair, the underlying dynamics involve a tug-of-war between macro sentiment and fundamental supply-demand factors.
Weaker Dollar and Bargain Buying: Short-Term Support, Not a Reversal Signal
A weaker dollar benefits dollar-denominated cotton exports by effectively lowering procurement costs for overseas buyers. However, whether this logic translates into actual transactions depends on genuine demand recovery. The day's US inflation data dampened expectations of Fed rate hikes, causing the dollar index to fall and providing a breathing space for cotton prices. Yet this is more a short-term effect driven by external liquidity, not an improvement in cotton's own supply-demand balance.
Bargain buying, meanwhile, carries a speculative tint. StoneX senior vice president Bailey McHenry noted that after the previous day's sharp sell-off, speculative funds engaged in technical repositioning. Buyers showed willingness to enter near the 76-cent level, but such operations often involve quick in-and-out moves without sustained support from industrial buyers. Should the dollar strengthen again or macro risks escalate, this support could quickly evaporate.
Weak Export Data: Unrelieved Demand-Side Pressure
In stark contrast to the futures rebound, the latest USDA export sales report showed net sales of current-crop US upland cotton at just 83,864 bales for the week ending June 18, down 53% week-over-week and 61% below the four-week average. Next-crop sales were 67,089 bales, also below market expectations. While shipments rose 20% from the prior week to 300,155 bales, shipments to China were only 12,248 bales, indicating that the largest consumer market has not accelerated its procurement pace.
These figures point to a core reality: inventory replenishment along the global cotton-textile chain remains sluggish. Under the dual pressure of high stocks and weak end-consumer demand, mills prefer a hand-to-mouth purchasing strategy rather than building forward positions. The decline in export sales suggests that shipment pressure may gradually accumulate in coming months, weighing on spot prices.
Oil Price Pass-Through: Substitution Logic Needs Conditions
International oil prices rose over 2% on the day due to renewed tensions in the Middle East, with vessel traffic through the Strait of Hormuz disrupted. Higher oil prices increase polyester fiber costs, theoretically benefiting cotton in the substitution competition. However, this transmission chain often involves a time lag and requires a substantial increase in polyester prices to trigger actual substitution. With ample polyester capacity and high inventory levels at polyester plants, the short-term impact of oil price volatility on cotton is relatively limited.
Industry Belt Reactions and Price Expectations
From the perspective of China's major cotton-textile industry belts, the correlation between Zhengzhou cotton futures and ICE cotton is weakening. Domestic cotton commercial stocks remain high, downstream weaving mills are operating at low utilization rates, and imported cotton purchases are limited to essential needs. Some traders report that if ICE cotton continues to trade in the 76-78 cent range, it will attract some basis trading, but large-scale procurement still requires clearer demand signals.
In summary, the June 25 rebound is largely a product of macro sentiment and technical buying, with no substantial improvement in cotton's supply-demand fundamentals. Persistent weakness in export sales data, low mill operating rates, and high inventories remain the core factors capping cotton prices. Short-term prices are likely to continue range-bound trading, with a directional breakout awaiting new catalysts such as weather changes in major producing countries, adjustments in Sino-US trade policy, or a recovery in end-consumer data.