Cotton Prices Rebound on Weather Fears: Zhengzhou Futures Rally Above 15,990 as Heat Persists

Cotton Prices Rebound on Weather Fears

The cotton market found its footing in early August as the reality of sustained Xinjiang heat stress translated into price action. Both physical and futures markets moved higher, breaking the July downtrend.

Price Action (August 5-6)

• Xinjiang 3128B spot: ¥17,559/ton, up 0.85% single-day (August 5)
• Zhengzhou CF609 futures: closed at 15,990/ton, up 1.14% — second consecutive day of gains
• CC Index: ¥17,393/ton (lagging spot due to calculation methodology)
• Basis (spot - futures): ¥1,569/ton, narrowing as futures catch up
• Cottonseed: ¥2.49/kg (stable)

The rally was driven primarily by supply-side concerns rather than demand improvement. The market is building a weather premium into cotton prices as August heat conditions persist across Xinjiang.

State Reserve Auction: Third Week

The state reserve cotton auction entered its third week with continued strong demand:

• Cumulative volume (July 20 - August 4): 96,222 tons
• Clearance rate: 100% (every session fully sold)
• Average transaction price: ¥17,191/ton
• Third week floor price: ¥16,166/ton (equivalent to ¥16,166 for standard 3128B grade)

The floor price acts as a policy-driven support level. With Zhengzhou futures at 15,990 (still below the reserve floor of 16,166), the market is signaling that physical cotton is worth more than futures prices suggest.

Commercial Inventory: Accelerated Destocking

National commercial cotton inventory data shows accelerated destocking:

• July 31: 248 million tons (down 11.8 million tons week-on-week)
• Destocking pace: significantly faster than seasonal norms
• Warehouse receipts (Zhengzhou): 9,903 lots (down week-on-week)

The combination of declining commercial inventory, falling warehouse receipts, and high auction demand creates a tightening physical market — even as the demand side remains weak.

The Weather Premium

The August weather forecast is the primary bullish driver:

• Xinjiang Climate Center: August temps 1.2-2.8°C above normal
• Marcus Weather: up to 5% yield reduction possible
• Field reports: "easy to decrease, hard to increase" yield consensus
• Irrigation water: tightening across South Xinjiang

The market is pricing in a production reduction of 3-5% from the Ministry of Agriculture's 634 million ton estimate. If August heat persists through mid-month, the discount could deepen.

Downstream: Still Weak

Despite the cotton price rally, downstream demand remains subdued:

• Mill operating rates: 72% (down from 85-90% in Q2)
• Yarn inventory: 23.1 days (rising)
• Grey fabric orders: 20-25% below seasonal norms
• Export orders: cautious, small batch sizes

The divergence between rising cotton prices and weak downstream demand is unsustainable in the medium term. Either demand must recover to justify higher cotton prices, or cotton prices must retreat to levels mills can absorb.

Technical Analysis

Zhengzhou CF609 futures:

• Support: 15,700-15,800 (tested and held)
• Resistance: 16,200-16,400 (key level to watch)
• Trend: short-term bullish, medium-term range-bound
• RSI: neutral, not overbought

The market is likely to remain volatile through August as weather reports and field condition surveys drive daily price movements.

Key Numbers for Hotel Linen Buyers

| Metric | Aug 6 Value | Week Change | Direction |

|--------|------------|-------------|-----------|

| Xinjiang 3128B | ¥17,559/ton | +0.9% | ↑ |

| Zhengzhou futures | 15,990 | +1.1% | ↑ |

| 32S combed yarn | ¥23,377/ton | flat | → |

| Polyester staple | ¥7,400/ton | flat | → |

| Reserve auction avg | ¥17,191/ton | -0.6% | ↓ |

| Commercial inventory | 248M tons | -4.5% | ↓ |

Procurement Implications

The cotton price rebound reinforces the importance of timely procurement decisions:

1. Cotton prices are rising — the weather premium is real and likely to persist through August

2. Yarn prices have not yet followed — mills are absorbing the cotton cost increase, but this cannot last

3. T/C blend products offer a hedge — polyester at ¥7,400 is unaffected by cotton weather concerns

4. The September harvest is the wildcard — a better-than-expected harvest could reverse gains; a poor harvest could accelerate them

Action: For cotton-rich linen products (100% cotton sheets, towels), consider pricing orders now before yarn prices adjust upward. For T/C blend products, there is less urgency — polyester prices remain weak and stable.