Cotton prices experienced a rollercoaster ride in June. The Zhengzhou Cotton Exchange's main contract swung from a high of 16,140 yuan per ton to a low of 15,615 yuan per ton, an amplitude of over 3% in just weeks. Meanwhile, polyester staple fiber futures fell to around 6,900 yuan per ton, while viscose staple fiber bucked the trend on tight supply. This divergence at the raw material level is now transmitting downstream to yarn and fabric sectors, making the off-season pressure more complex than in previous years.
Raw Material Divergence: Macro Forces vs. Supply-Demand Dynamics
Cotton market volatility stems from two opposing forces. The US-Iran agreement briefly boosted external markets, pushing domestic futures higher, but fundamental cotton yarn demand remained weak. Once speculative capital retreated, prices quickly fell back. The main contract is now oscillating between 15,600 and 16,100 yuan per ton, lacking a clear directional driver.
Polyester staple fiber's decline is more straightforward. The Strait of Hormuz has restored about 60% of pre-conflict traffic, erasing most of the geopolitical risk premium in crude oil, which weakened the cost support for the entire polyester chain. Futures are hovering near 6,900 yuan per ton, with stabilization dependent on downstream restocking. Viscose staple fiber, in contrast, is experiencing supply tightness, with mills limiting shipments and traders raising prices. However, downstream yarn sales remain sluggish, suggesting prices will likely stay elevated but range-bound.
Yarn Market: Inventory Buildup and Order Fragmentation
The pure cotton yarn market remains in an off-season rut. Mills' official quotes are stable, but trade discounting is widespread. Finished goods inventories are still creeping up, while downstream weaving utilization continues to decline, and autumn-winter orders have yet to materialize. Vortex-spun yarns and colored yarns are also under pressure: vortex-spun viscose and polyester-viscose blends are seeing weaker volumes and prices, while regular colored yarn varieties face heavy destocking pressure, with only high-count differentiated products maintaining some demand.
Differentiated yarn producers are running at full capacity, but order lead times have shortened to about one month, and new orders are mostly small-lot and spot. Polyester yarn prices have fallen in tandem with raw materials, prompting just-in-time buying from downstream mills, leaving spinners with insufficient orders and rising inventory pressure. Viscose yarn prices are soft, with slow transaction turnover, though mill operating rates and inventory levels remain stable for now.
Fabric Sector: Lower Loom Utilization and Shrinking Margins
Greige fabric mills are reporting slower shipments, with orders dominated by quick-response small lots. Finished goods are piling up, and mills are buying raw materials on an as-needed basis with little stockpiling intent. In the yarn-dyed fabric segment, raw cotton prices have dropped by about 300 yuan per ton recently, and high-count pure cotton yarn prices fell by around 180 yuan per ton. Fabric prices are showing localized weakness, squeezing margins to wafer-thin levels. For denim, 10s open-end cotton yarn remains stuck at around 14,600 yuan per ton, with both domestic and export markets sluggish, leading to lower mill utilization and aggressive destocking across the board.
Notably, the strengthening US dollar adds uncertainty to export-dependent categories like denim. Industry players are closely monitoring export trends to gauge the market's next direction.
De-stocking Pressure Along the Supply Chain
From raw materials to yarn to fabric, the current destocking cycle exhibits a classic bottom-up transmission pattern. Weakening end-demand first hits the fabric sector—orders shrink, utilization drops—which then reduces yarn procurement, ultimately depressing raw material prices. Cotton prices briefly rallied on macro sentiment but lacked industrial support. Polyester staple fiber fell faster due to cost collapse, creating a price scissors with cotton.
Viscose's tightness appears independent, but sluggish downstream yarn sales will eventually cap its upside. The industry is in a painful 'lower volume, lower price' phase, pressuring cash flow and margins.