China's cotton market in June was a story of tug-of-war between off-season demand weakness and supply-side weather concerns. The China Cotton Index (CC Index 3128B) averaged 17,547 yuan/ton, down 242 yuan/ton month-on-month but up 2,729 yuan/ton year-on-year. This decline reflects shrinking orders and cautious restocking by textile mills entering the traditional low season.
Off-Season Pressure Dominates
Domestic cotton prices went through three phases in June. They briefly rose to 17,899 yuan/ton early in the month, then fell to 17,336 yuan/ton by mid-month as orders dried up. A mid-month rebound to 17,632 yuan/ton was fueled by Xinjiang heatwave fears and declining commercial inventories. But by late June, rising finished goods inventories, falling mill operating rates, and cheaper chemical fiber alternatives pushed prices back down to 17,554 yuan/ton by month-end.
This volatility signals a lack of clear directional drivers. Mills have shifted from active stockpiling to hand-to-mouth buying, especially small ones with scarce orders and mounting inventory. 32s pure cotton yarn prices inched up just 56 yuan/ton to 23,333 yuan/ton, offering limited margin improvement.
Widening Domestic-International Price Gap
International cotton prices fell more sharply. ICE cotton futures for the front-month averaged 77.77 cents/lb, down 4.46 cents/lb. The China Import Cotton Price Index (FC Index M) averaged 86.69 cents/lb, down 6.79% month-on-month. By month-end, imported cotton cost 14,375 yuan/ton (under 1% tariff), 3,179 yuan/ton cheaper than domestic cotton, widening the gap by 618 yuan/ton.
This widening gap makes imported cotton increasingly attractive. Mills with import quotas can significantly lower raw material costs, while those relying on domestic cotton face higher cost pressure. This price structure may shift more demand toward imports in the near term.
Weather and Policy: A Mixed Bag
Persistent high temperatures in Xinjiang were the biggest support for domestic cotton prices in June, fueling output cut expectations amid tight end-of-season commercial inventories. However, this support remains largely speculative, not yet reflected in actual spot tightness.
Internationally, India's temporary suspension of cotton import tariffs briefly boosted demand expectations, but U.S. rainfall improving crop conditions, a stronger dollar, and Fed rate hike expectations weighed on prices. The USDA's WASDE report lowered global ending stocks, while the intensifying El Niño added uncertainty to Northern Hemisphere production.
Futures Market Lacks Direction
ZCE cotton futures traded in a 15,900-16,440 yuan/ton range in June, with a maximum swing of 5.2%. The monthly average settlement price was 15,944 yuan/ton, down 313 yuan/ton. The basis narrowed to 1,474 yuan/ton, indicating continued backwardation but weak buying interest. Expectations of state reserve auctions continued to cap futures prices.
Long-staple cotton market was also quiet. Grade 137 long-staple cotton ended at 26,930 yuan/ton, down 40 yuan/ton, with the premium over standard cotton narrowing to 8,850 yuan/ton. Mills bought only for confirmed orders, avoiding inventory accumulation.
Chemical Fiber Substitution Looms
Polyester staple fiber ended June at 7,250 yuan/ton, down 525 yuan/ton, while viscose staple fiber rose 200 yuan/ton to 14,300 yuan/ton. Falling crude oil prices lowered chemical fiber costs, enhancing their substitution for cotton. With cotton prices elevated and downstream demand weak, some mills may shift to blends or pure synthetics, squeezing cotton consumption.
Outlook: Volatility Continues
The cotton market remains stuck in a supply-demand stalemate. Demand is unlikely to improve before July-August, while supply hinges on Xinjiang weather and state reserve policy. If the heatwave persists, prices may find support; if weather improves or reserves are released, downside risks increase.