On August 27, ICE December cotton futures settled at 92.41 cents per pound, up 3.67% on the day, after touching 92.75 cents, the highest since April 2024. This marks the first time since early 2024 that cotton futures have broken above the key psychological level of 90 cents. For the textile supply chain, this price breakthrough is not just a numerical milestone—it signals that the tipping point for upstream raw material cost pass-through has been reached, and downstream yarn and fabric producers will face renewed pressure on their profit margins.
Background
The core driver behind this rally is the continued deterioration of US cotton crop conditions. The latest USDA crop progress report shows that the good-to-excellent rating for US cotton stands at only 37%, sharply down from 54% a year ago. Field tour feedback confirms this trend, with notable crop deterioration, and market concerns over weather risks are mounting. Additionally, forecasts for a strong El Niño event this year could significantly alter rainfall patterns in key growing areas, further tightening supply expectations. Since the start of the month, cotton futures have gained over 13%, reflecting a rapid repricing of supply-side risks by market participants.
Meanwhile, export sales data present a contrasting picture. For the week ending August 20, US upland cotton export sales netted 95,726 bales, down 54% from the previous week, with sales to China at only 1,628 bales and zero for the next marketing year. This indicates that the price increase is not driven by actual demand but by supply concerns. This combination of rising prices and falling volumes is a warning sign for textile mills relying on imported cotton—cost increases may not be effectively passed through to end-product orders.
Industry Impact
For domestic Chinese textile enterprises, the ICE cotton breakout above 90 cents means significantly higher procurement costs for imported cotton. With the Cotlook A index at 98.30 cents per pound, the landed cost in RMB exceeds 16,000 yuan per ton, up about 15% from recent lows. For mid-to-high-end yarn producers using US cotton, raw material costs typically account for over 70% of total costs, so this rise will directly compress processing margins. More critically, downstream demand has not shown a synchronized recovery, and the spread between domestic and international cotton prices may widen further, enhancing the substitution advantage of domestic cotton.
Looking at the transmission chain, Zhengzhou cotton futures are expected to follow the external market but with more moderate gains. Domestic commercial cotton inventories remain high, and supply pressure before the new crop arrives has not been fully released. Therefore, textile mills should avoid chasing the rally and instead lock in raw materials in batches based on their order cycles. At the same time, the price advantage of substitute fibers such as polyester staple fiber and viscose staple fiber will re-emerge, potentially prompting adjustments in blend ratios for some products.