Cotton prices have shown a diverging trend between domestic and international markets during the traditional off-season. The Zhengzhou Cotton futures main contract averaged 15,869 yuan/ton, down 25 yuan from the previous week, while the international cotton index M grade averaged 86.37 cents/lb, translating to an import cost of only 14,337 yuan/ton. This means the domestic-international spread has widened to 3,140 yuan/ton, rapidly eroding the cost advantage of domestic cotton.
Supply and Demand Show Clear Divergence
Real weakness on the demand side is transmitting through every link of the supply chain. The domestic C32S carded yarn averaged 23,274 yuan/ton, up 9 yuan week-on-week, but polyester staple fiber prices have fallen to 7,365 yuan/ton, a weekly decline of 1.7%. The substitution effect of synthetic fibers is accelerating—when the spread between polyester and cotton exceeds 10,000 yuan/ton, downstream blended yarn mills inevitably reduce their cotton blending ratios. Mills currently maintain low raw material inventories, with procurement strategies contracted to only meet just-in-time orders.
Signals on the supply side are more complex. The expectation of a tightening global cotton market persists, but the supporting logic is shifting from simple production cuts to an overlay of multiple uncertainties. USDA data shows that as of June 21, US cotton planting progress reached 92%, slightly ahead of last year, but the good-to-excellent crop rating stands at only 44%. Texas, the core producing state, has a planting rate of 90%, but the state's history of drought leaves the market uncertain about final yields.
Indian Monsoon and Middle East Shipping: Two Variables Reshaping Global Balance
India's cotton planting season faces a severe test. Data from India's Ministry of Agriculture shows that as of this week, monsoon rainfall is about 43% below the historical average. Meteorological departments predict that rainfall will remain weak in early July, and Indian cotton planting is highly dependent on monsoon precipitation from June to July. If rainfall remains insufficient, the new crop's production will be severely impacted. This variable could rewrite the global cotton supply-demand balance.
Another noteworthy variable comes from the Middle East. After the US and Iran signed a memorandum of understanding, the Strait of Hormuz was temporarily opened for 60 days, with daily oil shipments recovering to about 4.8 million barrels. Shipping agencies estimate this will release about 300,000 standard container capacity, alleviating the previous shortage of containers and tight space. For import cotton traders dependent on sea freight, falling freight costs mean further downward pressure on import costs, thereby compressing the domestic-international spread.
Domestic Cotton Regions Show Differentiation, Xinjiang Faces Irrigation Pressure
Domestic cotton has entered a critical growth period. The budding rate in Xinjiang's main producing areas is about 94-95%, with some plots beginning to bloom sporadically. However, regional differentiation is clear: northern Xinjiang has favorable hydrothermal conditions and better growth; southern Xinjiang faces localized irrigation pressure due to periodic high temperatures and increased evapotranspiration. Inland cotton regions are mostly in the budding to early flowering stage, with generally stable growth. There is currently no systemic risk of production reduction, but the impact of later high temperatures and irrigation conditions on yields needs continuous monitoring.
At the macro level, the central bank injected 200 billion yuan through increased MLF operations to ensure reasonable liquidity. National Bureau of Statistics data shows that from January to May, profits of industrial enterprises above designated size increased by 18.8% year-on-year, with textile industry profits up 11.7%. Policy dividends and industry resilience coexist, but transmission to cotton prices takes time.
Short-Term Range-Bound Pattern Hard to Break, Key Variables in September
In summary, the long-short tug-of-war in the cotton market is intensifying. The demand side is suppressed by the textile off-season and synthetic fiber substitution, while the supply side is supported by global weather uncertainty, domestic inventory drawdown, and expectations of lower new-crop output. Amid the clash between short-term weak demand and medium-to-long-term supply contraction, cotton prices are expected to maintain a range-bound oscillation in the short term.
The variables that could truly break the balance may appear in September—when the arrival of the new crop, the final outcome of the Indian monsoon, and the evolution of US cotton quality ratings will jointly determine the price direction for the fourth quarter.