The China-U.S. presidential meeting is imminent! ICE cotton surged nearly 3%, Zhengzhou cotton rebounded, but why is the spot market weakening?

On September 21, driven by news of the upcoming China-US summit and the advancement of China-US economic and trade consultations, market sentiment in the domestic and international cotton markets showed a noticeable recovery, leading to a divergence in cotton prices at home and abroad. Domestically, Zhengzhou cotton futures saw a reduction in positions with a rebound, while spot prices slightly weakened; internationally, ICE cotton futures surged significantly under the boost of positive news. The price differential between domestic and overseas cotton once again became a focal point of industry attention. The cotton market continues to seek direction amid the interplay of macroeconomic news and industry fundamentals.

Domestic Market Performance

From the perspective of domestic market performance, on September 21 the main Zhengzhou cotton contract closed at 15,870 yuan/ton, up 75 yuan/ton from the previous trading day’s settlement, showing characteristics of a rebound following a reduction in positions. A reduction in positions with rising prices indicates that the market is not being driven by a large influx of new bullish funds actively raising the market; rather, it reflects the exit of concentrated short positions from earlier periods, using favorable macro news to stop losses and close positions, thereby pushing prices upward.

Recently, the cotton market has been in a tug-of-war between bulls and bears. Downstream textile enterprises’ orders have not shown significant recovery, and with the gradual harvesting of new cotton, supply-side pressure continues to limit the upside potential of cotton prices, making market participants cautious. Against this backdrop, positive signals on the economic and trade front between China and the US have become an important short-term catalyst for market sentiment. These signals have boosted market expectations for subsequent improvements in foreign trade orders and stimulated the exit of short positions, propelling Zhengzhou cotton into a minor rebound.

Futures vs. Spot Divergence

The spot market and the futures market have shown divergent trends. On the same day, the domestic cotton 3128B price index was reported at 17,381 yuan/ton, down 7 yuan/ton from the previous trading day. The divergence between futures rebounds and slight declines in spot prices reflects that the current fundamentals at the industry level remain weak.

Macroeconomic positive signals mostly influence futures trading sentiment and have not yet quickly transmitted to the spot purchase and sales segment. At present, new domestic cotton has gradually entered the picking and selling phase, with the quantity of seed cotton listed in inland and Xinjiang production areas steadily increasing. Cotton mills are progressively weighing and purchasing, and the supply of new cotton is steadily being released.

On the downstream textile factory side, pressure from finished product inventories still exists, and the pace of end-market consumption recovery is not as expected. The sales speed of cotton yarn and greige fabric is moderate, and textile enterprises have a weak willingness to replenish stock, mostly adhering to a just-in-time procurement approach, showing reluctance to hoard large quantities. The lack of substantial improvement on the downstream demand side has resulted in spot cotton prices lacking sustained upward momentum. Even if futures rise due to market news, spot prices continue to remain slightly weak, and the spread between futures and spot prices further widens.

International Market Outlook

Regarding the international market, news of economic and trade consultations between China and the United States has significantly boosted confidence in the overseas bulk commodity markets. ICE cotton futures experienced a substantial rise, with the main contract closing at 83.46 cents per pound, representing a single-day increase of 2.85%.

The overseas trading market is highly sensitive to changes in China-US economic and trade relations. The positive signals released by the consultations have led market participants to reassess the global textile trade outlook. Market expectations suggest that demand for textile and apparel exports may recover, igniting speculative buying interest and directly driving US cotton prices sharply higher. Following the significant rise in US cotton, the domestic-foreign cotton price ratio has changed, leading to higher import cotton costs, which will also indirectly provide some support for domestic cotton prices. However, it should also be noted that the rise in US cotton is partly driven by the news itself. Future developments will depend on the implementation of actual trade policies. If the positive effects remain only at the expectation level, there is a risk of overseas cotton prices peaking and then declining.

Market Forecast

Looking ahead to the market outlook, in the short term, cotton prices will continue to be influenced by both macroeconomic news and industry fundamentals. Positive signals in Sino-US trade relations provide market sentiment support, but whether the market can sustain strength cannot rely solely on news stimuli; it ultimately depends on actual demand data. In the short term, Zheng cotton is likely to maintain a fluctuating pattern, with news causing temporary volatility, making it difficult for a one-sided major trend to emerge. On the supply side, as a large volume of new cotton from Xinjiang enters the market, the purchase price of seed cotton will become the key variable in determining the cost of new cotton, and the acquisition cost at ginneries will set the bottom range for cotton prices. On the demand side, attention should be focused on changes in textile industry orders and the pace of finished product inventory reduction. Only if foreign demand experiences substantial recovery alongside improvements in the trade environment will downstream procurement truly pick up.