On August 3, ICE December cotton futures closed 0.95% higher at 82.57 cents per pound, yet spent most of the session under pressure. The seemingly contradictory move reflects a tug-of-war between a crude oil slump and profit-taking. More importantly, the oil drop directly lowers polyester production costs, and as cotton's main substitute, any polyester price easing is reshaping mills' raw material sourcing decisions.
Background US crude futures fell over 5% that day, while Brent plunged about 7% to a three-week low, after President Trump paused further strikes on Iran, raising hopes of increased Gulf oil supply. Lower oil prices mean reduced feedstock costs for chemical fibers, temporarily enhancing polyester's substitution advantage over cotton—this was the core pressure on cotton during the session.
Meanwhile, positioning data showed a subtle shift. CFTC figures for the week ending July 28 showed speculators cut net longs in ICE cotton by 2,295 lots to 70,542 lots. Although modest, combined with last week's strong rally and subsequent pullback, sentiment is turning from outright bullish to cautious. StoneX risk management advisor Bailey McHenry noted that managed money still holds a fairly heavy net long, and on a weekly basis the market retains a slight upward trend.
Industry Impact Export data provide underlying support. USDA's export sales report for the week ending July 23 showed next-year upland cotton net sales of 352,400 bales, up sharply from 16,100 bales the prior week. This indicates overseas mills are actively locking in supplies on price dips, making current levels attractive to buyers.
But the fundamental picture is not uniformly bright. US cotton condition as of August 2 fell to 42% good-to-excellent, down from 46% the previous week and 55% a year ago, raising concerns about future supply. ICE deliverable stocks declined to 87,606 bales, down 3,093 from the prior session, reflecting tight nearby availability. The Cotlook A index rose 280 points to 92.80 cents per pound, showing firmness in international physical prices.
For Chinese mills, lower oil-driven polyester costs may prompt some orders to shift from cotton to synthetic fibers, especially in conventional woven fabrics. However, the deteriorating US crop condition and strong exports imply medium-term supply contraction risks. If the polyester-cotton spread widens excessively, it could trigger a catch-up rally in cotton.