Domestic cotton prices strengthened this week, driven by tightening supply and weather risks, diverging from the international market. The Zhengzhou Cotton Futures main contract settled at an average of 16,099 yuan/ton, up 230 yuan/ton or 1.4% from the previous week. The National Cotton Price B Index also rose to 17,643 yuan/ton, up 0.9% week-on-week. In contrast, the New York Cotton Futures main contract averaged 77.05 cents/lb, down 0.6% from the prior week, widening the domestic-international spread to over 3,500 yuan/ton, creating a window for textile mills to lock in lower-cost imported cotton.
Weather Becomes Key Pricing Factor for Domestic Market
Xinjiang's cotton belt is entering the critical yield-determining phase. Most fields are at early flowering to peak boll-setting, with earlier favorable light and heat conditions. However, the Central Meteorological Observatory forecasts persistent high temperatures of 37-43°C from July 1 to 7 across Northwest and North China. Some southern Xinjiang areas have already experienced periodic heat stress, increasing evapotranspiration and field management costs. While no widespread disaster has occurred, the duration of heat stress, water availability, and subsequent extreme weather will directly determine yields. Given Xinjiang accounts for over 90% of national output, this weather disturbance cannot be underestimated.
Global Supply-Demand Tightens Simultaneously
In India, monsoon rainfall is expected to be below normal, with cotton planting area down 35% year-on-year, significantly compressing global supply elasticity next season. The USDA's latest acreage report shows 2026 U.S. cotton planted area at 9.85 million acres, up 6% year-on-year, but yield recovery remains uncertain due to lingering drought in West Texas. Brazil's new crop harvest is progressing faster than last year, with exports in the first 14 working days of June up 10.6% from June 2025, but this increment cannot fully offset India's production gap. The global supply-demand balance is tipping toward tightness.
Downstream Demand Shows Structural Divergence
Domestic macro indicators are improving, with June manufacturing PMI rising to 50.3%, returning to expansion territory, and industrial enterprise profits up 18.8% year-on-year, supporting textile demand. However, transmission to end-use is uneven: C32S combed cotton yarn prices edged down 10 yuan/ton to 23,264 yuan/ton, while imported yarn fell more sharply by 178 yuan/ton to 22,861 yuan/ton, creating a -403 yuan/ton spread in favor of imports. Polyester staple fiber prices continued to decline, down 178 yuan/ton to 7,187 yuan/ton, increasing substitution pressure on cotton.
Policy and Geopolitical Risks Stir Market Sentiment
Two new EU regulations take effect in July: a fixed tariff on cross-border small parcels under 150 euros, and the Ecodesign for Sustainable Products Regulation banning destruction of unsold clothing. These are expected to dampen textile and apparel consumption, with Southeast Asian exports already declining—Bangladesh's May exports fell 90% month-on-month, Cambodia 88%, and Vietnam's April exports down 9%. The U.S.-Iran situation is boosting oil price expectations, potentially raising chemical fiber costs and indirectly benefiting cotton demand. The market is closely watching the U.S. 301 tariff hearing results and India's cotton imports after tariff removal.
Cotton Prices to Remain Strong but Volatile
In summary, domestic cotton prices are supported by Xinjiang weather risks and declining commercial inventories, while international prices are constrained by macro headwinds and improved U.S. weather. The wide domestic-international spread makes imported cotton more cost-effective, offering mills a chance to lock in lower costs. Short-term prices are likely to stay in strong volatility, but watch for downside risks if hot weather fails to cause material yield damage, or if Indian imports surge.