The spread between domestic and international cotton prices narrowed by 547 yuan per ton within a single week, falling to 1,743 yuan per ton—a rare move for this period in recent years. On the surface, this reflects a tug-of-war between weather-driven speculation abroad and policy controls at home, but the deeper story is a repricing of the global cotton supply chain: Northern Hemisphere crop concerns, faster Southern Hemisphere harvests, and surging Indian imports are simultaneously influencing prices, while domestic textile demand recovery clearly lags behind raw material gains.
Background
As of the week ending August 23, US cotton crop conditions rated good-to-excellent fell to 37%, the fifth consecutive weekly decline, with drought-affected areas rising from 44% to 52%. Texas dryness is expected to persist, and the probability of a 'very strong' El Nino event across the Northern Hemisphere this autumn/winter has exceeded 90%, with India's monsoon rainfall possibly 15% below normal. These supply-side factors drove the New York futures contract up 3.67% on August 27 to 92.75 cents per pound, the highest since April 2024.
Domestic Zhengzhou cotton futures were lifted by external gains, surging to 17,345 yuan per ton on August 28, but then retreated, with the weekly average settlement price rising only 0.7% from the prior week. As a result, the internal-external spread narrowed sharply, with imported cotton costs (1% tariff) rising to 16,407 yuan per ton, compressing the gap from 2,290 yuan to 1,743 yuan. This means imported cotton has lost its price advantage, directly impacting procurement strategies for foreign trade companies.
Meanwhile, domestic supply-side measures provided some offset. Reserve cotton sales continued to see 100% transaction rates, with cumulative sales exceeding 240,000 tons by August 28, supplementing market supply. Xinjiang cotton has entered the boll-opening stage, with some machine-picked fields showing 40-50% opening, and new crop arrivals are expected earlier than usual, creating a 'tight near-term, loose later' expectation.
Industry Impact
Behind the price movements lies a sharp divergence in profit distribution across the textile chain. National Bureau of Statistics data show that chemical fiber manufacturing profits surged 107.7% year-on-year in January-July, while textile industry profit growth slowed from 16.6% in January-June to 7.9%, and apparel profits remained in contraction territory at -17.2%. Raw material segments are thriving, processing margins are slowing, and apparel end-markets remain weak—structural mismatches in cost transmission persist.
Cotton price increases have not effectively passed through to yarn prices. Domestic C32S combed yarn prices rose only 0.1% this week, while imported yarn rose 0.7%, creating an inverted spread of 46 yuan per ton. Spinning mills face squeezed profits, dampening raw material purchasing appetite, as reflected in surveys at the Shanghai Yarn Expo (August 25-27): companies reported a slight improvement from last month but far below spring heat, with orders diverging and caution prevailing.
External trade uncertainties further suppress demand expectations. The US government is considering an additional 7.5% tariff on Chinese imports citing 'overcapacity,' which would raise combined tariffs on Chinese textile and apparel exports to the US to as high as 20-37.5%. If implemented, it would directly weaken export competitiveness. Additionally, Fed Chair Warsh signaled a hawkish stance, emphasizing the 2% inflation target as 'firm and fixed,' raising market expectations for rate hikes and tightening financial conditions, which pressures commodities.
Notably, India's cotton import surge may provide support for international prices. India imported 96,000 tons in June, up 175% year-on-year, bringing cumulative imports to 1.079 million tons, exceeding the USDA's August forecast of 1.043 million tons. Brazil's harvest progress reached 70.5%, ahead of last year, with Southern Hemisphere supply offsetting Northern Hemisphere crop concerns. International cotton prices may remain firm in the short term, but correction risks persist.