The 16,000 yuan/ton psychological level failed to hold. On July 9, the main Zhengzhou cotton contract for September 2026 broke below this threshold during trading, closing down 2.24%. This marks an acceleration of the correction that began in late June. On the same day, the ICE cotton December contract also fell 0.76% from a one-month high, settling at 80.67 cents per pound. The two markets weakened in tandem, but the driving forces were not identical.
The Bearish Overlay of Domestic and External Pressures
The decline in the international market was largely driven by technical profit-taking. After a sustained rally, ICE cotton longs chose to lock in gains ahead of the USDA supply-demand report, compounded by a stronger dollar that weighed on commodities broadly. The market is now focused on the upcoming global supply-demand estimates and export sales data, which will provide new direction for the new season's production-consumption balance and export demand.
The pressure in the domestic market is more structurally tied to weak end-user demand. The current period is the traditional off-season for textiles, with new orders notably insufficient. Spinning mills are seeing finished product inventories accumulate, and profit margins are being squeezed. Small and medium-sized enterprises are the most affected, with losses widening to the point where they have begun to reduce production or shut down lines. Their raw material procurement strategy has become highly conservative—purchasing only as needed, buying on a hand-to-mouth basis, and avoiding stockpiling or chasing price increases. This cautious buying rhythm directly suppresses the upward elasticity of cotton prices.
Weather Speculation Fades, but Risk Remains
One factor that had previously supported cotton prices was extreme heat in Xinjiang's cotton-growing regions. Temperatures in Yuli and Qiemo in southern Xinjiang exceeded 42°C, while Shihezi and Changji in northern Xinjiang hovered around 38°C. Heat stress caused boll shedding in some fields, raising expectations of lower per-unit yields for the new crop. However, temperatures in parts of northern Xinjiang have since eased, and meteorological conditions have become more favorable for cotton flowering and boll setting, significantly reducing the marginal impact of weather speculation.
Still, temperatures in some areas over the next week may approach or break historical extremes for the same period. The risk of heat stress during the boll-setting stage has not been fully eliminated. This means weather will remain a periodic trigger for price volatility, but it is no longer the dominant variable.
The Structural Contradiction of Xinjiang Inventory Drawdown and Capacity Expansion
Beneath the broadly bearish surface, a key structural factor is brewing. According to publicly available industry data, commercial cotton inventories in China continue to decline, most notably in Xinjiang. Available supply is tightening, contrasting sharply with relatively high inventory levels in inland areas and at ports.
At the same time, a wave of new spinning capacity has come online in Xinjiang this year. Regional cotton consumption potential continues to expand, with substantial incremental demand. According to Shenyin & Wanguo Futures, if the volume of cotton shipped out of Xinjiang remains high, combined with the rigid consumption of new local capacity, the region could face a phase of tight supply. This structural supply-demand contradiction could provide medium-term fundamental support for cotton prices.
This means the market is currently caught between short-term bearish factors and medium-term fundamentals. Weak demand, reserve release expectations, and external market pressure form the short-term price suppression force, while Xinjiang's inventory drawdown, capacity expansion, and weather uncertainty constitute a potential bottom support.