The cotton spot market in early July is showing a subtle divergence: while some traders have lowered basis to destock, downstream spinners remain largely unmoved by the 20-30 yuan/ton concession, with wait-and-see sentiment deepening.
Basis Eases, But Deals Stay Tepid
As Zhengzhou Cotton Futures (ZCE) staged a volatile rebound into July, spot prices failed to follow suit. Feedback from trading firms in Jiangsu, Zhejiang, Shandong, and Hubei indicates that a minority of traders trimmed their sales basis by 20-30 yuan/ton to accelerate cash flow. However, the move failed to spur significant trading volumes. Spinners and intermediaries have largely paused, divided on the near-term price outlook.
A key signal is the market's tilt toward lower-basis resources. Cotton from southern Xinjiang (Kashgar, Kizilsu, Hotan) and eastern Xinjiang (Hami) has drawn notably more inquiries due to its lower basis. Meanwhile, 'fixed-price' competitive sales sessions run by large cotton firms have become an important channel for mills to meet urgent replenishment needs. This shift suggests that mills, amid price uncertainty, prefer non-basis pricing to lock in costs and avoid basis volatility.
Accelerated Warrants Outflow: A Tactical Shift
In contrast to the sluggish spot market, the outflow of ZCE cotton warrants and valid declarations has accelerated. From June 26 to July 2, daily net reductions stood at 74, 73, 49, 55, and 62 lots, respectively—a marked pickup from mid-June.
This acceleration reflects mills' rational response to multiple constraints. First, the basis for Xinjiang cotton stored in Xinjiang warehouses remains stubbornly high, making direct spot purchases costly. Second, market expectations are building for a tightening supply of high-quality cotton (e.g., 'double 29/30/31') ahead of the 2026/27 new crop arrival. Third, a shortage of import quotas for the second half of the year is widely anticipated, forcing mills to secure domestic resources early. By taking delivery of warrants, mills are effectively using futures to lock in future deliverable high-quality supply—a proactive hedge against spot market scarcity.
Regional Price Spreads and Structural Opportunities
Examining actual quotes reveals a notable regional price divergence. For the period July 1-3, basis levels for southern Xinjiang local cotton (grade 3129B/3130B, against ZCE CF2609 contract) in inland warehouses (Henan, Shandong, Jiangsu) ranged from 1,520 to 1,810 yuan/ton (including warrants). In contrast, northern Xinjiang cotton of similar specs commanded a basis of 1,820 to 2,050 yuan/ton, with Corps cotton offerings even scarcer.
This translates to a premium of 200-400 yuan/ton for northern Xinjiang cotton over its southern counterpart. For cost-sensitive mills, southern and eastern Xinjiang cotton naturally become the focus of inquiries and purchases. This persistent regional spread underscores differences in quality profiles, logistics costs, and market liquidity across producing areas. For buyers, a pragmatic strategy at this stage may involve targeting southern Xinjiang resources or entering via warrants.