Cotton Market Analysis

2025-09-05

PART 1: Macroeconomic Factors

(I) International Markets:

The US Core PCE Price Index (YoY) for July registered 2.9%, the highest since February 2025, matching expectations. Traders continue to bet on a Fed rate cut in September.
India has extended its policy exempting cotton import tariffs, moving the expiry date from September 30th to December 31st.

(II) Domestic Market:

China's Manufacturing PMI for August was 49.4%, up 0.1 percentage points from the previous month.
On August 30th, it was reported that from August 27th to 29th (local time), China's International Trade Negotiator and Vice Minister of Commerce, Li Chenggang, visited the US. He held talks with relevant officials from the US Department of the Treasury, Department of Commerce, and the Office of the US Trade Representative. The two sides exchanged views on implementing the consensus reached in the phone call between the heads of state of China and the US, focusing on China-US economic and trade relations and implementing the consensus from the economic and trade talks.

PART 2: Fundamental Analysis

(I) Supply Side

According to the USDA, as of August 24th, the US cotton boll setting rate was 81%, lagging 7 percentage points behind last year and 6 points behind the five-year average. The US cotton boll opening rate was 20%, lagging 4 points behind last year and 2 points behind the five-year average. The US cotton crop condition rated 'good' to 'excellent' was 54%, down 1 percentage point week-on-week but 14 points higher year-on-year.
According to the USDA, as of August 19th, approximately 22% of the US cotton-growing area was affected by drought, a significant increase of 17 percentage points from the previous week. In Texas, about 3% of the cotton area was drought-affected, unchanged from the previous week.

As of August 28, 2025, the operating rate of ginning mills nationwide remained at 1.45%.
Regarding imports, China's cotton imports in July were 50,000 tons, a decrease of 73.2% year-on-year. Cumulative cotton imports from January to July were 520,000 tons, a decrease of 74.2% year-on-year.

(II) Demand Side

For the week of August 15th-21st, net upland cotton export sales for the US 2025/26 crop year were 40,665 tons, a significant increase of 70% compared to the previous week. Upland cotton exports for the week were 25,560 tons, down 9% from the previous week. US upland cotton sales increased sharply week-on-week, while weekly exports remained weak.
Vietnam's textile and apparel exports in July were valued at $3.911 billion, up 8.7% month-on-month and up 5.3% year-on-year.

As of August 22nd, the operating load of spinning enterprises in mainstream regions was 65.9%, up 0.15% week-on-week. The slight increase in the operating rate indicates some expectation among mainland spinning mills for the upcoming peak season, with previously idled mills starting limited production.
In July, China's cotton imports were 50,000 tons, up 20,000 tons month-on-month but down 150,000 tons year-on-year. Cotton yarn imports were 110,000 tons, flat month-on-month but down 20,000 tons year-on-year. Cotton fabric imports were 3,981.43 tons, up 29.16% month-on-month but down 10.57% year-on-year.

(III) Inventory Situation

Imported Cotton Inventory: As of August 28th, port inventory for imported cotton in major ports was 311,200 tons, down 4.45% week-on-week.
Warehouse Receipt Changes: As of September 3rd, Zhengzhou Cotton registered warehouse receipts stood at 5,996 lots, indicating a decrease in futures warehouse receipts.
Commercial Inventory: As of August 28th, the national total commercial cotton inventory was 1.547 million tons, a decrease of 165,600 tons from the previous week, indicating continued inventory drawdown.
Spinning Mill Cotton Inventory: For the week ending August 21st, the cotton inventory days of spinning enterprises in mainstream regions were 27.50 days. As the peak textile season has not yet started, yarn market sales are slow. Spinning mills' enthusiasm for purchasing cotton is not high, with procurement strategies focused on immediate needs, keeping raw material inventory generally stable.

PART 3: Technical Indicators

Moving Average System: Arranged in a bullish dispersion pattern, but the spread is small, indicating weak short-term upward momentum.
MACD Indicator: Volume/Fast and Slow lines show a bearish divergence with the price, suggesting a short-term correction is needed.
Trading Range: Moving within a short-term upward channel recently. Channel support is at 13,850; channel resistance is at 14,400.

US Cotton (CT): In a bottom consolidation phase. Support is at 66 cents/lb; resistance is at 68 cents/lb.

PART 4: Analysis Conclusion

Conclusion and Market Outlook:

Macro Level: The US circuit court's ruling against Trump's illegal tariffs and the expectation of a September Fed rate cut support overall positive sentiment. Domestically, continued positive factors from infrastructure and consumption, the release of liquidity, and the better-than-expected August PMI data are favorable for the commodity market.
Zheng Cotton (CF): On the supply side, domestic supply is expected to increase, with potential pre-hedging arising from subsequent pre-sales. On the demand side, demand is anticipated to recover soon, and operating rates have slightly rebounded. On the inventory side, domestic inventory continues to decline, providing some support for cotton prices. Overall, factors such as potential US dollar interest rate cuts, positive domestic macro conditions, and tight inventory persist. Prices are expected to remain volatile with a stronger bias in the short term. Short-term support: 13,850; Short-term resistance: 14,400.
US Cotton (CT): India's zero cotton import tariff and drought conditions in the US provide short-term support for US cotton. Furthermore, prices are in a bottoming area, creating conditions for a rebound. Short-term support: 66; Short-term resistance: 68.