Price trend

Cotton prices ended their upward trend last week, experiencing a sharp correction. According to the SunSirs’ commodity market analysis system, as of August 4, the spot price of 3128B grade lint cotton was 15,172 RMB/ton, down 2.72% from its peak in July.

Macroeconomic Outlook:

Domestic macroeconomic sentiment weakened. With the Zhengzhou cotton main contract approaching its month-end rollover, the market showed little appetite for warehouse receipts. This retreat in long positions drove Zhengzhou cotton futures prices down continuously, causing domestic cotton spot prices to break through and fall, hitting a new low in over a month.

The possibility of an extended tariff truce in US-China trade negotiations has slightly boosted market sentiment, but the unexpectedly weak US non-farm payroll data for July confirmed weakening momentum in US job growth, increasing the likelihood of a September interest rate cut. New US tariffs took effect on August 1, further increasing uncertainty about future global trade.

Industry:

Domestically, the tight supply situation remained unchanged as the season nears its end. Xinjiang cotton was in the boll-bearing stage, and overall growth was better than in previous years. Continued high temperatures in the region have accelerated cotton growth and development, leading most cotton farmers to maintain cautious expectations for yield increases.

Due to the lack of new orders during the domestic textile off-season and the significant fluctuations in cotton prices since mid-to-late July, many mainland textile companies have fallen into losses. Textile companies in Xinjiang were also shipping at no profit, resulting in a sluggish overall market sentiment. An increasing number of textile companies were reducing, suspending, or switching production, and were becoming more cautious about cotton purchases. As of July 31st, the operating capacity of textile companies in major regions was 66.6%, a decrease of 1.48% month-on-month.

Internationally, high cotton inventories continued to constrain prices. With improved cotton seedling conditions and limited weather disruptions in the new season, coupled with subdued US cotton export data, international cotton prices lacked clear support. According to the US Department of Agriculture, net contracts for US upland cotton for the 2024/25 marketing year were 8,868 tons in the week of July 18-24, a significant decrease from the previous week and a significant increase from the four-week average. Over the past two months, the average weekly export volume for US cotton for the next marketing year has been just 25,000 tons, a historically low figure.

Future outlook:

From a fundamental perspective, the domestic cotton market was experiencing a negative impact on cotton prices due to continued weak downstream demand. This led to a further decline in cotton prices, as expectations of a bumper harvest in the new year had intensified. However, the tightening supply situation remained unchanged as the year drawing to a close. The downward trend is expected to be limited, and a rebound may occur in the future. Future attention will focus on new production in the new year, the impact of reciprocal tariff policies on exports, and changes in downstream demand.

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