Zhengzhou cotton futures averaged 16,336 yuan per ton this week, up 2.3% from the previous week, while New York futures touched 85.25 cents per pound, the highest since May 14. The synchronized rally reflects tightening supply expectations driven by adverse weather in the Northern Hemisphere and the USDA supply-demand report, but weak downstream demand and ongoing reserve sales cast doubt on the rally's sustainability.
Supply Side: Weather and USDA Report Reinforce Tightening
Xinjiang's high temperatures and drought have sparked output reduction expectations, with cotton boll opening possibly earlier than usual, and some hand-picked ginning mills in southern Xinjiang plan to start purchasing in late August to early September. Meanwhile, the USDA August report lowered US cotton yields to 798 pounds per acre, cutting production by about 20,000 tons; global ending stocks were reduced by about 330,000 tons to 15.19 million tons, down 1.11 million tons year-on-year. As of August 9, US cotton condition was rated 40% good-to-excellent, down from 53% a year earlier, with Texas drought pressure persisting during the boll-setting period.
India's sowing is largely complete, but rainfall in major producing areas is forecast below normal for the next two weeks; in the Southern Hemisphere, Brazil's harvest reached 28.4%, and Australia's June exports nearly tripled month-on-month. New-crop US cotton export commitments reached 205,000 tons in the first week, up 273% from the previous week, indicating strong international demand at lower prices. Multiple supply disruptions have shifted market expectations from surplus to tightening.
Demand Side: Weak Domestic Recovery, Resilient Exports
Domestic downstream shows sporadic signs of recovery, with mill operating rates up to 80.6% and yarn sales-improving, but fabric sales declining, indicating weak final orders. Autumn-winter orders are gradually landing in Hubei, Anhui, and Guangdong, prompting mills to destock yarn ahead of the 'golden September and silver October' season, though actual transmission takes time.
In the US, July CPI rose 3.4% year-on-year and PPI 4.7%, indicating easing inflation, but retail sales fell 0.6% month-on-month and consumer confidence dropped to 51.0, signaling weakening demand. Fed rate hike expectations have cooled, with monetary policy turning accommodative, providing macro support to commodities. However, geopolitical uncertainties in the Middle East could still cause periodic market volatility.
Price Transmission: Wider Spread, Slower Yarn Rally
Domestic cotton prices exceed international by 2,507 yuan per ton, with the spread widening by 46 yuan. Imported cotton costs 15,382 yuan per ton, still below domestic spot. Imported yarn rose slightly more than domestic, with C32S combed yarn averaging 23,344 yuan per ton, 108 yuan lower than domestic, maintaining a price advantage. Polyester staple fiber rose to 7,534 yuan per ton, offering some substitution support.
Reserve cotton sales continued with 100% turnover and higher average prices, with cumulative sales reaching 160,000 tons as of August 14, supplementing market supply. Amid the tug-of-war between supply tightening and weak demand, cotton prices may remain volatile with an upward bias in the short term, but supply support is expected to weaken as new crop output becomes clearer.