The cotton market experienced a critical psychological test on June 23. Zhengzhou cotton futures broke through the key 16,000 yuan/ton level during trading, closing at 15,905 yuan/ton, down 105 yuan for the day. This marks the first breach of this psychological threshold since last November, shifting market sentiment from cautious to bearish.
The spot market followed suit, with the 3128B price index at 17,631 yuan/ton, down only 1 yuan. But the apparent stability masks a severe contraction in trading volumes. Downstream mills have shifted to a 'small-lot replenishment on demand' strategy, with bulk purchasing virtually absent. This isn't a price issue—it's an order issue. Sluggish recovery in terminal apparel demand is pushing finished inventory upstream.
The Transmission Chain of Co-Movement
International bearish factors are more concentrated. ICE cotton futures closed at 78.59 cents/lb, down 1.03%, but this decline wasn't isolated. A stronger dollar, a broad commodity sell-off, and capital outflows combined to pressure cotton from both supply and financial angles.
With U.S. cotton planting nearly complete, the market has raised its new-crop production forecast, ensuring supply-side pressure for months ahead. This expectation has directly impacted China's import cotton market: on June 24, port quotes edged lower, with SM grade at 14,961 yuan/ton and M grade at 14,627 yuan/ton. Notably, mid-grade M cotton fell more than high-grade SM, narrowing the domestic-import spread.
A narrower spread should improve import cotton's cost competitiveness, but buying interest hasn't picked up. The reason: weak downstream demand has overwhelmed any price-level benefits. When orders are scarce, even cheap raw materials become inventory burdens.
Industry Response to the Supply-Demand Deadlock
The current cotton market exhibits a classic 'weak supply, weak demand' pattern. On the supply side, ample U.S. new-crop expectations and still-elevated domestic commercial inventories. On the demand side, delayed order recovery, low mill operating rates, and replenishment limited to essential needs.
This configuration impacts the supply chain in layers. Upstream ginners face sales pressure, with some cutting offers to move product. Intermediate traders stay on the sidelines, reluctant to build positions. Downstream mills prefer just-in-time buying, pushing inventory risk upstream.
Regionally, Xinjiang's planting area is stable, but weather remains a variable. Mills in traditional textile hubs like Shandong and Henan report year-on-year order declines, with some cutting operating rates below 60%. This cautious sentiment is spreading through the entire chain.
Short-Term Outlook and Key Variables
Market consensus points to a lack of rebound momentum. Zhengzhou futures, spot prices, and import quotes are likely to remain weak until supply or demand fundamentals shift. Three key variables deserve close monitoring:
U.S. cotton belt weather—extreme drought or flooding could reverse the ample-supply expectation, the most likely catalyst for a breakout.
Domestic textile orders—whether the traditional 'golden September and silver October' peak season materializes will determine downstream restocking pace.
RMB exchange rate—continued yuan depreciation against a strong dollar would raise import costs, offering some support to domestic prices.
Until these variables signal a clear direction, the market will likely stay weak. For industry participants, controlling inventory and maintaining cash flow flexibility is more practical than betting on a price rebound.