Cotton prices are currently caught in a classic 'ceiling and floor' tug-of-war. This week, the average price of the main Zhengzhou Cotton Futures contract stood at 15,869 yuan/ton, down 25 yuan from the previous week, while the domestic spot price index (B-index) edged up to 17,477 yuan/ton. The domestic-foreign price spread narrowed by 54 yuan to 3,140 yuan/ton, still too wide to attract import purchases.
Supply Side: Weather and Policy Dual Pressures
Two key factors are shaping global cotton supply this week. First, US new-crop planting progress is ahead of schedule, but the crop condition rating is only 44% good-to-excellent, still low despite an improvement from last year. Texas, the largest cotton-producing state, has 90% planted, but drought relief there is limited, leaving yield potential uncertain. Second, India's monsoon rainfall is 43% below the historical average, and forecasts for early July remain weak. India's cotton crop relies heavily on June-July rains; if the deficit persists, a significant downward revision to India's new-season output is likely.
Domestically, Xinjiang's cotton has entered the peak squaring stage. Conditions are favorable in northern Xinjiang, but southern Xinjiang faces periodic heat stress and irrigation pressure. Overall, the national cotton crop is developing normally, but regional disparities are evident. No systemic yield loss has been flagged yet, but high-temperature impacts on per-unit yield require close monitoring.
Demand Side: Off-Season Blues and Synthetic Substitution
Unlike supply uncertainties, the demand picture is clearer—and weaker. The textile industry is in its traditional off-season, with downstream orders characterized by short runs and small lots. Mills are purchasing raw materials only for immediate needs. Domestic C32S cotton yarn averaged 23,274 yuan/ton, up just 9 yuan from last week. Imported yarn prices were flat, leaving a 235 yuan/ton inverted spread, indicating limited competitiveness for imported yarn.
More notably, synthetic fiber substitution is accelerating. Polyester staple fiber prices fell 128 yuan to 7,365 yuan/ton, widening the price gap with cotton. Under weak end-user demand, some mills are increasing synthetic fiber usage to cut costs, further capping cotton's demand elasticity.
Macro and Policy: Short-Term Boost, Long-Term Watch
Two positive macro signals emerged this week. First, the US-Iran memorandum of understanding temporarily opened the Strait of Hormuz for 60 days, sending oil prices back to pre-conflict levels. Shipping capacity is expected to be released, and freight rates may decline, easing export cost pressure for textile traders. Second, the People's Bank of China injected 200 billion yuan via MLF operations, ensuring ample liquidity and lowering corporate financing costs. National Bureau of Statistics data showed that from January to May, the total profit of industrial enterprises above designated size rose 18.8% year-on-year, with the textile sector's profit up 11.7%, indicating industry resilience.
Price Outlook: Short-Term Range-Bound, Medium-Term Bullish
In summary, the cotton market is in a phase of conflicting forces. Short-term weak demand and synthetic substitution cap upside, while global weather uncertainty, domestic inventory drawdown, and expectations of lower new-crop output provide a floor. Over the next 1-2 weeks, prices are likely to remain range-bound, with the Zhengzhou main contract trading between 15,500 and 16,200 yuan/ton. However, over the medium term, if India's monsoon deficit persists or US heat stress intensifies, the supply tightening narrative will strengthen, pushing the price center higher.