Domestic cotton prices exhibited structural strength over the past week, with the main contract of Zhengzhou cotton futures settling at an average of 16,099 yuan per ton, up 230 yuan per ton or 1.4% from the previous week. This rally is not driven by short-term speculation but by the superposition of two fundamental factors: Xinjiang output cut expectations and continued commercial inventory depletion.
Fundamentals: Output Cuts and Inventory Depletion
Xinjiang cotton regions have generally entered the early flowering stage, with growth progress roughly in line with normal years, and some areas slightly ahead due to favorable light and heat conditions. However, the Central Meteorological Observatory forecasts sustained high temperatures of 37 to 43 degrees Celsius in northwest and south-central North China from July 1 to 7, directly challenging cotton during the critical flowering and boll-setting period. The duration of heat stress, water and fertilizer supply capacity, and extreme weather evolution will become core variables determining final yield. In other words, Xinjiang cotton output expectations are shifting from "stable" to "increasingly uncertain," and this shift has already been priced into futures.
Meanwhile, continued commercial inventory depletion has further tightened spot market supply. The National Cotton Price B Index averaged 17,643 yuan per ton, up 166 yuan per ton or 0.9% from the previous week, indicating strong spot-side follow-through. This synchronized rally between futures and spot typically suggests a relatively consensus view among market participants regarding future supply gaps.
Global Landscape: Divergent Production Regions Worsen Supply Concerns
Divergent growth among major global cotton producers is intensifying supply-side worries. The USDA's latest planted acreage report shows 2026 US cotton planted area at 9.85 million acres, up 6% year-on-year, but the recent easing of drought in US cotton regions offers limited yield support. In India, the meteorological department predicts July monsoon rainfall below normal, and Reuters reports Indian cotton planted area down 35% year-on-year, a drop far exceeding market expectations. Although Brazil's new crop harvest is progressing, export pace is faster than last year, with 146,800 tons exported in the first 14 working days of June, 10.6% higher than June 2025, indicating that available Brazilian cotton in the international market is depleting faster.
Overall, the global cotton supply-demand balance is transitioning from "loose" to "tight." The Indian output cut expectation is one of the strongest supports for international cotton prices, while Xinjiang weather risks provide additional upside elasticity for domestic prices.
Downstream Transmission: Yarn Prices Under Pressure, Margins Squeezed
The cotton price rally has not smoothly transmitted to the downstream yarn sector. Domestic C32S carded yarn weekly average price fell 10 yuan per ton to 23,264 yuan per ton, while imported C32S carded yarn weekly average price dropped 178 yuan per ton to 22,861 yuan per ton, with imported yarn 403 yuan per ton cheaper than domestic yarn. This "cotton up, yarn down" pattern means profit margins for spinning mills are being compressed. For small and medium-sized mills focused on carded yarn, rising raw material costs coupled with stagnant product prices will further increase operational pressure.
Polyester staple fiber prices continued their decline, with weekly average prices falling 178 yuan per ton to 7,187 yuan per ton. Weaker substitute prices may divert some cotton demand, but given the larger magnitude of cotton price increases, the cotton-polyester spread is widening, which constrains the competitiveness of pure cotton products.
External Risks: Policy and Geopolitical Factors Intertwine
At the macro level, the EU imposed fixed tariffs on cross-border small parcels under 150 euros from July 1, and the Ecodesign for Sustainable Products Regulation takes effect on July 19, banning the destruction of unsold clothing. These policies are expected to create headwinds for textile and apparel consumption. Export figures from major Southeast Asian countries have already declined: Bangladesh's May exports fell 90% month-on-month and year-on-year; Cambodia's exports fell 88% month-on-month and 87% year-on-year; Vietnam's April exports fell 9% month-on-month and 4% year-on-year. Weakness at the export end will suppress upstream cotton demand.
Additionally, renewed US-Iran military conflict has heightened market concerns about shipping safety through the Strait of Hormuz, raising expectations of an international oil price rebound. Higher oil prices will increase chemical fiber raw material costs, potentially indirectly supporting cotton prices.