The cotton market is facing a concentrated test on the demand side. On July 16, ICE cotton futures for December fell 2.25 cents to close at 79.30 cents per pound, a drop of nearly 3%. Market sentiment was pressured by two key factors: US cotton export sales hitting a marketing-year low and China's upcoming national reserve cotton auction starting next Monday.
Export Data Signals Clear Weakness
The USDA export sales report for the week ending July 9 showed that current marketing-year upland cotton net sales were only 34,360 bales, the lowest of the marketing year, down 48% from the previous week and 63% below the four-week average. Notably, net sales to China were negative, with a reduction of 32 bales, and for the next marketing year, net sales to China were zero. This indicates that Chinese buyers have paused or even retreated from US cotton purchases in anticipation of the reserve auction.
Shipment data was also discouraging. Total upland cotton shipments were 214,893 bales, down 7% from the previous week and 14% below the four-week average. Shipments to China were only 3,348 bales, an extremely low level. These figures suggest that not only are new orders shrinking, but the execution of existing orders is also slowing.
Consumer Side: Apparel Retail and Macro Data Double Pressure
The US Commerce Department's June retail sales data added another dimension of pressure. Overall retail sales rose 0.2% month-over-month, the smallest gain in five months, but were up 6.7% year-over-year. However, apparel sales fell 9% month-over-month, making it one of the worst-performing categories. Georgia-based cotton broker Keith Brown noted that consumers are shifting spending to gasoline, fuel, and food rather than clothing. This shift in consumption patterns directly weakens the end-demand support for upstream cotton.
Meanwhile, the US dollar index maintained its upward trend, rebounding from near one-month lows. A stronger dollar makes dollar-denominated cotton more expensive for non-US buyers, further dampening export demand. ICE deliverable cotton stocks fell to 98,838 bales from 100,612 bales the previous day, but this minor decline did not boost prices.
China's Reserve Auction: Short-Term Supply Shock and Long-Term Policy Signal
China's upcoming national reserve cotton auction, starting next Monday, is a key variable currently affecting international cotton prices. The auction means increased domestic supply in the short term, which will directly reduce textile mills' reliance on imported cotton. Historically, China's reserve auctions tend to put downward pressure on ICE cotton futures in the period leading up to and shortly after the auction, especially when the auction volume deviates from market expectations.
For Chinese textile mills, the auction provides a lower-cost raw material option, but they need to monitor the auction pace and quality composition. If the auction mainly involves low-to-medium grade cotton, demand for high-grade imported cotton may remain firm; conversely, if large volumes of high-grade cotton enter the market, the premium for US cotton will be further compressed.
Industry Impact: Upstream-Downstream Transmission and Procurement Strategy Adjustments
From an industrial cluster perspective, textile mills in China's major cotton-producing regions such as Xinjiang, Shandong, and Henan will prioritize consuming state reserve cotton in the short term, potentially slowing their imported cotton procurement pace. For Southeast Asian textile mills, the decline in US cotton prices may create a phased purchasing window, but they need to be cautious about exchange rate fluctuations and shipping delays.
The downstream grey fabric and finished fabric markets are currently in a traditional off-season, with terminal orders mainly small and medium-sized. Lower cotton prices help reduce production costs, but if the downtrend continues, it could also trigger increased wait-and-see sentiment downstream, forming a negative feedback loop of 'buying on rising, not on falling'.