【Wdoodoo Weekly Cotton Report】Macroeconomic Drag Pulls Prices Down, While Tight Medium-to-Long-Term Supply-Demand Fundamentals Provide Bottom Support

Cotton prices retested recent lows last week. CF09 closed at RMB 15,705/ton, down RMB 305 week-on-week; CCIndex 3128B settled at RMB 16,930/ton, down RMB 270 week-on-week. Prices corrected under triple pressure of weak overseas cotton, bearish macro sentiment and downstream off-season demand. Nevertheless, expectations of tightened global supply for the new season continued to underpin prices, and we maintain the view that cotton will trade in wide elevated ranges for the second half of the year.

1，Macroeconomics: Dual Liquidity & Geopolitical Headwinds Keep Near-Term Sentiment Bearish

Global monetary tightening has curbed risk appetite for commodities, while a stronger US dollar weighs on overseas cotton prices. Fading geopolitical risk premiums for crude oil erode cost support for cotton. The US temporary tariffs will expire in late July, and new tariffs of 10%-12.5% are proposed, putting textile export prospects under pressure.

However, the Lujiazui Forum signaled multiple growth-stabilizing policies. Intensive field research by central authorities recently hints at forthcoming incremental stimulus measures. Market participants will closely monitor the policy tone released at the late-July Politburo meeting.

2、Supply Side: Mixed Overseas Fundamentals, Sustained Domestic Destocking, Tight Medium-to-Long-Term Outlook

Fundamentals diverge across major overseas producers: US cotton planting progress hit 92%, flat year-on-year, with crop condition rating at 53%, up 6% YoY. Drought indices in Texas eased notably, and the USDA may raise production forecasts, creating near-term bearish pressure. India saw drastically below-average monsoon rainfall, delaying planting progress and threatening lower yields, yet planted acreage is set to rise, leaving the scale of output reduction uncertain.

Domestically, destocking persists. BCO data shows national commercial cotton inventories stood at 3.4136 million tons, down 331,700 tons from late May, with Xinjiang inventories declining in tandem and tight liquidity in spot markets. Xinjiang cotton has entered the flowering and boll-setting stage with stable weather for now, while high temperatures and water shortages in July pose potential risks.

3，Textile Sector Enters Traditional Off-Season; Rigid Demand Remains Resilient

Marked off-season demand is evident in the short run. Operating rates for yarn and grey fabric mills fell further month-on-month, downstream finished goods inventories kept accumulating, spinning mills showed little willingness to restock proactively and only covered rigid demand on dips, pulling down days of raw material inventory.

Support persists over the medium to long term: expanding spinning capacity underpins base demand, and purchasing activity in Southeast and South Asia stays resilient. Markets expect the peak demand season of “Golden September & Silver October” to boost order volume. Xinjiang spinning mills maintain decent processing margins, leaving room for demand recovery later.

Overall, near-term bearish macro factors and off-season downstream demand dominate and send cotton prices into a corrective phase. However, expectations of a tight global cotton balance sheet for the 26/27 season remain intact. Sustained domestic destocking and low downstream finished goods inventories cap downside room. Going forward, track key variables including the USDA US cotton planting acreage report, Indian monsoon rainfall and high temperatures in Xinjiang in July.

Trading strategy: adopt a wait-and-see stance for now; seek long opportunities on dips after macro sentiment eases and futures stabilize. The long-term support zone stands at RMB 15,300–15,500/ton.