When news of sustained 43°C heat in Xinjiang cotton regions coincided with warnings of below-normal monsoon rainfall in India, the global cotton market's supply-side narrative intensified. Domestic cotton prices in China rose steadily this week on production cut expectations and inventory drawdowns, with the Zhengzhou Cotton Futures main contract averaging 16,099 yuan/ton, up 230 yuan/ton from the previous week. However, international prices retreated on macro headwinds and easing drought in US cotton regions, with the New York ICE cotton main contract averaging 77.05 cents/lb, down 0.50 cents/lb. This divergence reflects the increasingly complex dynamics driving cotton prices.
Supply Side: Weather Risks Move from Expectation to Reality
The weather outlook for Xinjiang is the key variable for the domestic market. Cotton across the region has entered the flowering stage, with growth largely on par with normal years. However, the Central Meteorological Observatory forecasts 37-43°C temperatures across northwest and north China from July 1-7, threatening the critical period of squaring, flowering, and boll setting. Southern Xinjiang has already experienced periodic high temperatures, increasing evapotranspiration and field management difficulty. While no widespread damage has occurred, the duration of heat and water availability will be decisive for final yields.
Meanwhile, the Indian Meteorological Department warned on June 30 that July monsoon rainfall is expected to be below normal. Reuters reported that India's cotton planted area has fallen 35% year-on-year. This supply signal from a major producer and consumer is amplifying market expectations of tightening supply. In Brazil, new-crop harvesting continues, with exports in the first 14 working days of June reaching 146,800 tons, up 10.6% from June 2025, but this incremental volume is insufficient to offset production cuts elsewhere.
The USDA's June 30 planted acreage report showed 2026 US cotton acreage at 9.85 million acres, up 6% year-on-year. Planting is largely complete, with squaring and boll development improving year-on-year, but the actual yield impact of easing drought remains to be seen. Overall, the global supply tightening trend is well-established, with weather risks moving from expectations to reality.
Demand Side: Policy and Export Data Create Dual Headwinds
In contrast to supply tightness, demand faces multiple pressures. The EU began imposing fixed tariffs on cross-border small parcels under €150 on July 1, and the Sustainable Products Ecodesign Regulation takes effect July 19, banning destruction of unsold clothing. These policies will increase textile trade costs and suppress European demand. For Chinese textile exporters targeting the EU, this means further constraints on order growth.
Southeast Asian textile export data already shows significant declines. In May, Bangladesh exports fell to $440 million, down 90% month-on-month and year-on-year; Cambodia exports were $180 million, down 88% month-on-month and 87% year-on-year; in April, Vietnam exports were $3.72 billion, down 9% month-on-month and 4% year-on-year. These figures indicate a systemic contraction in global textile demand, with the downward trend unlikely to reverse soon.
Domestically, macro conditions have improved. June's manufacturing PMI rose 0.3 percentage points to 50.3%, returning to expansion territory. Industrial enterprise profits grew 18.8% year-on-year. Data from the China Council for the Promotion of International Trade on June 30 showed textile and leather goods among the top three industries for overseas exhibitions, reflecting resilience in traditional export sectors. However, whether macro improvement translates into cotton consumption depends on actual downstream orders.
Price Outlook: Structural Opportunities Amid Fluctuations
Current price drivers are predominantly supply-side: Xinjiang production cuts, sharply reduced Indian planting area, and ongoing global inventory drawdowns form the basis for a bullish outlook. However, demand weakness and policy uncertainty create upside resistance. The market is closely watching the US 301 tariff hearing results and actual import volumes following India's removal of cotton import tariffs—these variables will drive near-term sentiment.
For textile mills, the current price trajectory suggests a narrowing procurement window. The spread between domestic and international cotton prices has widened significantly: the National Cotton Price B Index averaged 17,643 yuan/ton, while import cotton CIF cost at 1% tariff is only 14,115 yuan/ton, a gap exceeding 3,500 yuan/ton. This makes imported cotton more cost-effective, but quota restrictions and trade policy risks remain constraints.