Spinning mills are keeping raw material inventories low, but their buying appetite remains tepid. Latest weekly data shows domestic spot cotton prices edged up RMB 30/ton to RMB 17,477/ton, while Zhengzhou Cotton futures slipped RMB 25/ton to settle at RMB 15,869/ton. The domestic-import spread ballooned to RMB 3,140/ton, with imported cotton landed cost at just RMB 14,337/ton—over RMB 3,000 cheaper than domestic supply. This price structure reflects the market's core tension: weak demand caps upside, while tightening supply expectations provide a floor.
Demand-Side Weakness and Price Anchors
Downstream signals confirm the traditional off-season impact. Domestic C32S combed yarn prices edged up only RMB 9/ton to RMB 23,274/ton, while polyester staple fiber prices dropped RMB 128/ton to RMB 7,365/ton. The substitution effect of man-made fibers is strengthening—as chemical fiber prices keep falling, mills have greater flexibility to adjust their cotton blending ratios, further reducing cotton demand elasticity. Imported yarn prices held flat at RMB 23,039/ton, narrowing the gap with domestic yarn to just RMB 235/ton.
Mills have adopted an ultra-conservative procurement strategy. Low inventories combined with expectations of lower new-crop output should theoretically trigger restocking demand, but in reality, mills are buying only hand-to-mouth. The logic is straightforward: without a pickup in end-user orders and with finished goods inventories still elevated, any active restocking would tie up capital and increase risk exposure. Until this chain breaks, cotton prices will struggle to sustain any rally.
Supply-Side Weather Variables: A Mixed Bag
The supply narrative is far more complex. In the US, drought conditions are easing. As of June 21, 2026/27 US cotton planting reached 92%, with the core Texas region at 90%. The crop condition rating of 'good to excellent' stood at 44%, up 9 percentage points year-on-year, suggesting improving fundamentals. India tells a different story. India's Ministry of Agriculture reports monsoon rainfall is 43% below the historical average, with early July forecasts still weak. Cotton planting is heavily dependent on June-July monsoon rains; persistent deficits could severely threaten new-crop output, making this the biggest supply-side risk for global cotton markets in the coming months.
Domestically, Xinjiang's cotton has entered the peak squaring period. Northern Xinjiang enjoys favorable hydrothermal conditions, while southern Xinjiang faces local irrigation stress due to high temperatures and evapotranspiration. Inland cotton regions are generally stable. No systemic production risk exists yet, but the impact of late-season heat and water availability on yields needs close monitoring.
Macro Environment and Policy Support
On the geopolitical front, the Middle East situation has seen a temporary détente. Following the US-Iran memorandum of understanding, Strait of Hormuz traffic is recovering, with daily oil shipments back to about 4.8 million barrels. The easing of shipping congestion is expected to release around 300,000 TEUs of container capacity, potentially lowering ocean freight rates and further strengthening the cost advantage of imported cotton.
Domestically, monetary policy is supporting liquidity. The central bank injected a net RMB 200 billion via medium-term lending facility operations. National Bureau of Statistics data shows industrial profits above designated size grew 18.8% year-on-year in the first five months, with textile industry profits up 11.7%. Policy dividends are trickling down, but transmission to textile end-consumption will take time.
In summary, the tug-of-war between near-term demand weakness and medium-term supply contraction will persist. Zhengzhou Cotton futures are expected to trade in a RMB 15,500-16,200/ton range, awaiting new catalysts.