Domestic cotton prices continued to strengthen amid tightening supply and weather risks, with Zhengzhou Cotton Futures main contract averaging 16,099 yuan/ton, up 1.4% from the previous week. The National Cotton Price B Index also rose to 17,643 yuan/ton, up 0.9%. This price movement reflects the market's strong reaction to expectations of reduced Xinjiang cotton production and the ongoing depletion of commercial inventories, creating a temporary supply-demand mismatch.
Supply Side: Double Squeeze from Weather and Planting Area Xinjiang cotton regions are entering the critical flowering and boll-setting period, but the Central Meteorological Observatory forecasts sustained high temperatures of 37-43°C in early July. If this heatwave persists, it will directly impact cotton yields. Some southern Xinjiang areas have already experienced periodic high temperatures, increasing evapotranspiration and making field management more difficult. Although irrigation has prevented widespread disaster so far, market concerns about final output are intensifying.
Meanwhile, India's cotton planting area has fallen 35% year-on-year, with monsoon rainfall expected to be below normal, further tightening global supply expectations. USDA data shows US cotton planted area for 2026 reached 9.85 million acres, up 6% year-on-year, while Brazil's new crop harvest is progressing faster than last year, with exports in the first 14 working days of June up 10.6% year-on-year. Global producing regions show a pattern of "decline in the East, increase in the West," but overall supply still faces uncertainty.
Demand Side: Dual Pressure from EU Regulations and Southeast Asian Decline In contrast to supply-side tensions, demand is under multiple pressures. The EU began imposing fixed tariffs on cross-border small parcels under 150 euros from July 1, and the Ecodesign for Sustainable Products Regulation takes effect July 19, banning the destruction of unsold clothing. These policies will directly raise costs for cross-border e-commerce and fast fashion brands, dampening textile and apparel consumption.
Major Southeast Asian textile and apparel exporters are already feeling the chill: Bangladesh's May exports fell 90% month-on-month, Cambodia 88%, and Vietnam's April exports dropped 9% month-on-month and 4% year-on-year. These figures indicate a clear contraction in global textile trade. For Chinese textile enterprises, this means fiercer competition for export orders, especially potential price wars for mid-to-low-end products.
Price Transmission: Widening Domestic-International Spread and Yarn Market Divergence The spread between domestic and international cotton prices is widening. Imported cotton, with a 1% tariff, costs only 14,115 yuan/ton, about 3,500 yuan/ton cheaper than domestic cotton. This puts Chinese mills in a dilemma: using imported cotton significantly reduces costs but faces quota constraints; using domestic cotton means high raw material costs.
Downstream yarn markets show signs of divergence. Domestic C32S combed yarn prices edged down to 23,264 yuan/ton, while imported C32S yarn fell to 22,861 yuan/ton, 403 yuan/ton cheaper than domestic yarn. Polyester staple fiber prices continued to decline, averaging 7,187 yuan/ton, down 178 yuan/ton week-on-week. The substitution effect of chemical fibers for cotton is strengthening, further capping cotton price upside.
Macro Variables: Policy and Geopolitical Uncertainty US-Iran military tensions have heightened concerns about shipping safety in the Strait of Hormuz, with international oil prices expected to rebound. Higher oil prices will directly increase chemical fiber raw material costs and indirectly affect cotton trade through transportation costs. Additionally, the outcome of US Section 301 tariff hearings and actual changes in Indian cotton imports after tariff removal will be key market focuses.
Domestic macro data shows positive signals. June manufacturing PMI rose to 50.3%, returning to expansion territory, and industrial enterprise profits grew 18.8% year-on-year. In foreign trade, textile, apparel, and leather industries ranked among the top three in overseas exhibition participation, demonstrating strong resilience. However, whether this macro recovery translates into actual textile orders remains to be seen.