As of June 22, domestic cotton spot prices saw a slight rise, whereas downstream cotton yarn markets remained sluggish due to the traditional off-season. The market exhibits a divergent pattern: raw material prices are supported by expectations of reduced future production, while finished product prices face pressure from weakening short-term demand. While weather variations in major global producing countries and shrinking planting areas have established a medium-to-long-term floor for cotton prices, domestic textile enterprises face insufficient orders and accumulating inventories of finished goods, limiting the upside potential for yarn prices. Coupled with the delayed implementation of the state cotton reserve release policy, the industry chain is characterized by a distinct tug-of-war between bullish and bearish forces.

I. Spot Price Performance (June 22)

1. Cotton Lint (Spot)

The national average price for mainstream 3128B grade cotton lint stood at 17,632 yuan/tonne, a slight increase from the previous day. Quotes for Xinjiang 3128B cotton delivered to factories rose slightly to 17,495 yuan/tonne, and the spot basis narrowed marginally. Upward momentum remains limited in the short term; downstream purchasing has not kept pace, and holders show little urgency to sell, with transactions primarily driven by small-volume, essential-need orders.

2. Pure Cotton Yarn (Spot)

Cotton yarn market performance is significantly weaker than that of cotton, creating a divergence where raw materials are strong but finished products are weak. Quotes for various counts of pure cotton yarn are under pressure; textile mills are generally accelerating sales by lowering prices and offering concessions, with deeper price cuts seen in low-count ring-spun and rotor-spun yarns. High-count yarns have less room for price reductions due to higher raw material costs.

Production and sales have weakened, and yarn mills continue to see an accumulation of finished product inventories. Downstream weaving and garment factories are purchasing only for immediate needs, with bulk stockpiling having completely ceased. New orders for both domestic and export markets have declined, leaving cotton yarn prices without upward momentum.

II. Global Cotton Market Situation

1. US Cotton Regions: Drought Relief and Expectations of Ample Short-Term Supply

Drought indices in key US cotton-producing regions have declined. Texas has experienced sustained rainfall, improving soil moisture and cotton seedling growth. The "drought premium"—the price increase previously driven by drought concerns—has rapidly dissipated, placing downward pressure on overseas cotton prices in the short term. However, with fixed annual planting plans and limited room for future yield increases, this is unlikely to create sustained downward pressure on prices.

2. Indian Cotton Market: Significant Drop in Planting; Clear Bullish Outlook for Medium-to-Long Term

Rainfall from the southwest monsoon has been below average this season; as of June 19, the planted area for the new cotton crop had dropped by nearly 28% year-on-year. As a major global cotton producer and consumer, India's significant reduction in planting area has directly fueled expectations of a global decline in new-crop cotton output, serving as a key factor supporting international cotton prices over the medium to long term. While local authorities may adjust import tariffs—potentially boosting foreign cotton purchases in the short term—this will not alter the overarching trend of reduced domestic production.

3. Global Costs and Macroeconomic Disruptions

Geopolitical conflicts in the Middle East previously drove up the costs of agricultural inputs such as fertilizers and diesel, simultaneously raising global cotton cultivation and harvesting costs. Cotton farmers in major producing nations are reluctant to sell at low prices, effectively establishing a solid floor for international cotton prices. Although fluctuations in expectations regarding overseas macroeconomic liquidity have periodically weighed on cotton markets, the fundamental logic of a tight supply-demand balance—driven by weather and planting trends—remains the dominant long-term factor.

III. Current Operational Status of Domestic Cotton and Cotton Yarn Markets

1. Cotton Supply: Tight Resources This Season; Expectations of Reduced Output for the New Crop

Domestic circulating cotton inventories are currently at moderate levels, though the total volume of available resources for the season remains tight. With domestic cotton planting areas reduced year-on-year, the market generally anticipates lower output for the new crop, providing support for spot prices in the medium to long term. However, the lack of news regarding the release of state cotton reserves has led to a "wait-and-see" attitude among textile enterprises; unwilling to engage in bulk restocking, they are limiting the potential for short-term price surges.

2. Cotton Yarn Demand: Pronounced Characteristics of the Traditional Off-Season

June marks the start of the traditional off-season for the textile industry. Downstream demand for apparel and home textiles remains sluggish, and inventories of finished goods continue to rise. Weaving mills have reduced operating rates, creating a ripple effect that suppresses demand for cotton yarn procurement.

Export orders have also weakened, with overseas clients slowing their pace of ordering; only a small number of short-term orders are being finalized, while large, long-term contracts remain scarce. Some overseas orders are being diverted to other production regions, and the growth in cotton yarn exports is insufficient to offset the weakness in domestic demand. 3. Inventory and Production-Sales Characteristics Across the Supply Chain

Cotton circulation inventory remains stable, while textile enterprises maintain low raw material stocks, replenishing supplies in small quantities based on immediate needs. Conversely, inventories of finished cotton yarn continue to accumulate, increasing pressure on enterprises to ship goods; price-cutting promotions have become widespread as rising raw material costs cannot be smoothly passed downstream, leading to continued compression of profit margins for textile firms.

IV. Overview of the Upstream and Downstream Supply Chain

Upstream: Cotton Cultivation and Circulation

Both global and domestic planting areas for the new cotton season have contracted; coupled with rising costs for agricultural inputs, cotton farmers remain firm on pricing. While rainfall in US cotton-growing regions has eased concerns in the short term—creating expectations of looser supply—significant planting reductions in India have offset this bearish factor, providing solid price support for cotton spot markets. Arrivals of imported cotton remain steady, supplementing market circulation, yet this is unlikely to alter the long-term outlook of a tight supply-demand balance.

Midstream: Cotton Yarn Processing

Cotton costs continue to rise, yet price increases for cotton yarn are hindered by the off-season slump. Processing margins are shrinking, leading to increased production cuts and shutdowns among small and medium-sized processing plants. Bullish factors from the raw material side fail to translate to finished products; profits are concentrating in the upstream cotton sector, placing significant pressure on midstream textile enterprises. Blended and chemical fiber yarns are diverting demand away from pure cotton, further dampening trading activity for pure cotton yarn.

Downstream: Grey Fabric and Apparel (Domestic and Export Markets)

Domestic consumption recovery lacks momentum; stocking for summer apparel is nearing its end, while autumn orders have yet to be released in volume, causing downstream enterprises to slow their purchasing pace. Export performance is mixed; while orders have picked up in some regions, overall growth remains limited. Intense overseas price competition and weak bargaining power for finished goods make it difficult to pass on yarn price increases upstream. The accumulation of downstream finished-product inventories is forcing upstream yarn suppliers to lower prices to move stock. V. Analysis of Key Bullish and Bearish Market Drivers

Bullish Factors

India's cotton planting area has seen a significant year-on-year reduction, with expectations of lower global cotton output for the new season persisting over the medium to long term;

Geopolitical tensions have driven up the cost of agricultural inputs; global cotton farmers are reluctant to sell, leading to a scarcity of low-priced supplies;

Domestic cotton supplies available for circulation this season are tight, and with the projected planting area for the new season revised downward, long-term supply is expected to contract;

Drought conditions in US cotton-growing regions have seen only temporary relief, and weather-related risks remain throughout the growing cycle.

Bearish Factors

The domestic textile industry is in its traditional off-season; orders for cotton yarn—both domestic and export—have weakened, leading to an accumulation of finished product inventories;

Policies regarding the release of state cotton reserves have yet to be implemented, causing textile mills to adopt a wait-and-see approach with little appetite for large-scale restocking;

Rainfall in major US cotton-growing regions has improved, boosting the short-term outlook for new crop development and suggesting a looser supply situation in the near term;

Ineffective cost pass-through for cotton yarn has forced mills to lower prices to move stock, thereby dampening short-term demand for raw cotton procurement.

VI. Market Outlook

Cotton prices are maintaining a trend of slight, fluctuating gains driven by expectations of reduced global output; however, upside potential remains limited due to persistently weak demand for cotton yarn during the off-season. Cotton yarn prices are generally trending weak, with mills continuing to offer price concessions to move inventory, resulting in narrow-range fluctuations. Market activity is limited to sporadic small orders driven by immediate needs, with little likelihood of large-scale restocking.

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