【Wdoodoo Weekly Cotton Report】Limited bullish catalysts leave short-term supply gap absent, cotton stays in consolidation

Cotton staged a cautious rebound last week. CF09 settled at CNY 16,100 per ton, rising CNY 205 from the prior week; domestic spot grade 3128B cotton closed at CNY 17,260 per ton, up CNY 180 week-on-week. Speculation over U.S. drought has cooled, alongside the domestic traditional off-season, leaving the market dominated by wait-and-see sentiment.

1. Commodity index shifts into sideways consolidation

Geopolitical tensions have eased recently, yet the outlook for US-Iran negotiations remains volatile. Global energy inventories have fallen to low levels; failure to resolve shipping access issues in the Strait of Hormuz before July may reignite fears of a global economic downturn. Renewed rate hike expectations across Europe and the US cap commodity upside to some extent. The Wenhua Commodity Index keeps range-bound amid divergent market views, with most commodities trading within narrow bands.

2. Core bullish fundamentals intact: expected new-season supply shrinkage plus persistent domestic physical demand underpin cotton prices

Driven by drought and China’s policy-led cut in cotton planting acreage, the May USDA report pegs global 26/27 cotton output down 1.436 million tonnes year-on-year, while ending stocks drop sharply by 1.181 million tonnes. Northern Hemisphere cotton is still in planting and vegetative growth phases. US-Iran frictions lift farming costs, and rising El Niño odds leave global 26/27 supply subject to variable risks. Meanwhile, steady capacity expansion in domestic yarn mills sustains rigid demand, forming a tight supply-demand balance that puts a solid floor under cotton prices over the medium to long run.

3. Marginal improvement in U.S. drought plus domestic reserve auction rumours cap near-term cotton gains

Widespread rainfall across U.S. cotton belts eases drought pressure and drags down ICE cotton futures. As of May 26, Texas Drought Index stood at 188, down 17 month-on-month yet 34 higher year-on-year.

China’s state cotton reserve sales have not been officially launched but continuously curb price rallies. Historically, reserve auctions are mostly rolled out in Q3 to counter tightness around new-crop harvest; pending auction implementation helps stabilise prices better than immediate sales.

4. Off-season symptoms emerge while underlying physical demand offers support

Average yarn operating rates dropped notably last week, with grey cotton fabric utilisation sliding further and staple fibre fabric inventories climbing sequentially. Cotton and yarn stockpiles at spinning mills edged lower, and finished goods inventories remain comparatively lean overall. Xinjiang spinners maintain stable operating rates and robust cotton consumption, with abundant buying orders placed near CNY 15,800. The industrial chain stays sound with no demand-driven negative feedback in sight.

Weekly Focus Points

1.Evolution of geopolitical conflicts in the Middle East

2.Development of drought conditions across the United States

3.Performance of downstream end-user demand