Bearish signals in the cotton market are spreading from the import side to the entire textile chain. On July 9, imported cotton quotes at China's main ports edged down, directly lowering the port delivery cost of imported cotton. This shift is not isolated; it coincides with a simultaneous decline in domestic futures markets, loosening price support from upstream raw materials to downstream yarns.
Background
According to publicly available industry data, the International Cotton Price Index (SM grade) fell by 0.61 cents/lb to 90.92 cents/lb on July 9, while the M-grade index dropped 0.60 cents/lb to 88.99 cents/lb. Under a 1% tariff, the SM grade translates to a general trade port delivery price of approximately 15,226 yuan/ton, and the M grade to about 14,907 yuan/ton. The lower cost of imported cotton enhances the cost-effectiveness of foreign cotton for domestic textile mills but simultaneously exerts direct pressure on domestic cotton prices.
Meanwhile, the main Zhengzhou Commodity Exchange cotton contract (2609) closed at 15,930 yuan/ton on the same day, down 245 yuan/ton from the previous session, a decline of about 1.5%. More notably, open interest in this contract decreased by 34,680 lots, indicating active withdrawal of long capital and a warming bearish sentiment in the market.
Industry Impact
The synchronized weakness of imported cotton and Zhengzhou futures exerts dual pressure on the domestic spot cotton market. From a substitution effect perspective, lower imported cotton costs will attract more textile mills to purchase foreign cotton, reducing demand for domestic cotton and pressuring domestic lint cotton prices. From a cost perspective, the loosening of upstream raw material prices will transmit along the supply chain.
Currently, the lint cotton segment is feeling significant pressure. Due to the strong substitution relationship between imported and domestic cotton, weaker imported cotton quotes mean that cost support for domestic lint cotton is weakening. For cotton yarn producers, raw material costs account for a high proportion of total costs. The decline in cotton and lint cotton prices implies loosening support on the raw material side, putting cotton yarn prices at risk of downward adjustment.
From the perspective of the long-short rating system, both cotton and lint cotton received a bearish rating of -1, while cotton yarn received a slightly bearish rating of -0.5. This indicates that market participants generally believe the current downward price trend is transmissible and sustainable, making a reversal unlikely in the short term.