On August 27, ICE cotton futures for December settled at 92.41 cents per pound, up 3.67% on the day, after touching an intraday high of 92.75 cents—the highest since April 2024. This marked the first time since early 2024 that cotton broke above the key 90-cent threshold, with month-to-date gains exceeding 13%. For the textile industry, this is not just a number on the screen; it signals rapidly accumulating pressure on raw material costs, squeezing margins for spinners and fabric mills.
Background
The immediate driver is the deteriorating condition of the US cotton crop. The latest USDA crop progress report shows good-to-excellent ratings at only 37%, down sharply from 54% a year ago. Field tours confirm significant deterioration, heightening market sensitivity to weather disruptions. This year's El Niño is expected to be particularly strong, potentially altering rainfall patterns in key growing areas, adding a weather premium to prices.
Meanwhile, the macro environment provides a tailwind. The US dollar index edged lower, reducing the cost of dollar-denominated commodities, while Brent crude rose 2.1%, boosting overall sentiment. However, fundamentals are not uniformly bullish—the USDA export sales report showed net sales of 95,726 bales for the current marketing year, down 54% from the previous week, with China accounting for only 1,628 bales and zero for the next marketing year. The contrast between weak demand and supply concerns suggests this rally is supply-driven, not demand-led.
Industry Impact
For Chinese textile mills, ICE cotton breaking above 90 cents means imported cotton costs will rise significantly. At current exchange rates, the landed price under the 1% tariff is close to 16,000 yuan per ton, narrowing or even inverting the spread with domestic prices. Mills relying on imported cotton for high-count yarns will face direct cost pressure, which will transmit to yarn quotes. However, downstream fabric and garment makers, constrained by weak orders, have limited tolerance for price hikes, potentially leading to a stalemate where raw materials rise but finished goods cannot.
From an industrial cluster perspective, the Xinjiang cotton region is relatively insulated due to domestic supply, but Zhengzhou cotton futures often follow ICE, so domestic prices are likely to rise as well. Fabric prices in clusters like Shengze and Keqiao have seen tentative increases, but actual transactions remain to be seen. For foreign trade companies, high cotton prices combined with RMB exchange rate fluctuations complicate profit calculations for export orders, making forward hedging and raw material hedging more critical.
It is worth noting that US cotton quality ratings are at a five-year low, and the El Niño pattern may persist into the northern hemisphere autumn, suggesting supply-side concerns are unlikely to fade soon. However, the decline in export sales warns that high prices are curbing demand; once weather expectations improve, a correction is possible. Overall, cotton prices are likely to remain in a wide range with high volatility.