International cotton prices are experiencing a rare sharp rally. On August 27, the most-active December cotton futures contract on ICE settled at 92.41 cents per pound, up 3.67% on the day, after hitting an intraday high of 92.75 cents, the highest since April 2024. This marks the first time since early 2024 that prices have broken above the 90-cent threshold, with a cumulative gain of over 13% this month. Given the generally weak demand expectations across the textile supply chain, this price surge has caught many buyers off guard, forcing downstream players to reassess raw material cost pressures.
Event Background
The direct driver of this rally is the deteriorating condition of US cotton crops. The latest USDA crop progress report shows that as of late August, the good-to-excellent rate for US cotton had fallen to 37%, compared with 54% a year earlier. Field surveys have indicated significant crop deterioration, while concerns that a strong El Niño weather pattern could further disrupt rainfall have fueled speculative inflows into cotton futures. A broader rally in grain markets provided additional support, with crude oil rising and the US dollar index edging lower, creating a favorable macro backdrop for commodities.
Notably, the price surge has not been echoed by demand. The USDA export sales report showed that for the week ending August 20, current-year US cotton export sales were 95,726 bales, down 54% from the previous week, with China's net purchases at just 1,628 bales and zero for the next marketing year. This indicates that the rally is primarily supply-driven rather than order-driven, widening the divergence between price and fundamentals.
Industry Impact
For domestic textile enterprises, cotton prices above 90 cents mean significantly higher raw material procurement costs. The Cotlook A index has already risen to 98.30 cents per pound, a notable increase from earlier lows. Considering RMB exchange rate fluctuations and freight costs, actual landed costs could be even higher. Spinning mills that rely heavily on US cotton and have not locked in lower-priced inventories may see profit margins squeezed, potentially forcing them to adjust product mixes or reduce operating rates.
More concerning is the potential for downstream buyers to adopt a wait-and-see attitude amid the price-demand divergence. When cotton prices are high and orders are weak, weaving and garment companies tend to reduce raw material inventories, further dampening cotton consumption. Once weather speculation cools or new crop supply pressure emerges, prices could correct sharply, leaving those holding high-priced inventories exposed to losses.
From an industrial cluster perspective, Xinjiang cotton is in a critical growth phase, and weather changes will also influence domestic prices. The strong international market may lend some support to Zhengzhou cotton futures, but domestic supply-demand dynamics are relatively independent, with downstream consumption recovery being the core determinant. Export-oriented enterprises should also monitor Sino-US trade policy and exchange rate movements, as these factors could offset or amplify the impact of international price fluctuations.