Cotton prices are undergoing a supply-driven revaluation. Latest weekly data shows the main contract of Zhengzhou Cotton Futures averaged 16,099 yuan/ton, up 230 yuan/ton from the previous week, with the China Cotton Index B rising to 17,643 yuan/ton. In contrast, international cotton prices faced macro headwinds, with the New York Cotton Futures main contract averaging 77.05 cents/lb, down 0.50 cents. The domestic-import spread has widened to over 3,500 yuan/ton, reshaping procurement strategies for textile mills.
Supply Tightening: Output Fears and Weather Risks Converge The core driver behind domestic cotton price gains is the output reduction expectation in Xinjiang. Cotton across the region has entered the early flowering stage, with southern Xinjiang already experiencing periodic heatwaves. The Central Meteorological Observatory forecasts sustained high temperatures of 37-43°C in northwest and north-south China through early July, coinciding with the critical boll-setting period. The duration of heat stress and water availability will determine final yields.
More concerning is India's situation. The Indian Meteorological Department warned July monsoon rainfall will be below normal, and Reuters reports a 35% year-on-year drop in India's cotton planting area. As the world's second-largest producer, India's acreage contraction will significantly impact the 2026/27 global supply. While US planted area rose 6% to 9.85 million acres, lingering drought in Texas remains uncertain. Brazil's new crop harvest is progressing, but its June export volume of 147,800 tons is insufficient to fill the gap.
Demand Headwinds: EU Regulations and Southeast Asian Slump On the demand side, multiple headwinds are emerging. The EU's new tariff on cross-border parcels under 150 euros, effective July 1, combined with the Ecodesign for Sustainable Products Regulation banning destruction of unsold clothing from July 19, will raise procurement costs for European buyers, directly impacting fast fashion and cross-border e-commerce.
Southeast Asian export data already signals trouble. In May, Bangladesh's textile and apparel exports plunged 90% month-on-month and year-on-year to $440 million; Cambodia's exports fell 88% month-on-month and 87% year-on-year. Vietnam's April exports were down 9% month-on-month and 4% year-on-year. These numbers confirm a rapid global demand contraction, and the new EU rules will further slow recovery.
Widening Spread: Implications for Procurement and Trade With domestic cotton prices now over 3,500 yuan/ton higher than import costs, the spread is at multi-year highs. For mills relying on imports, the cost advantage is clear: imported C32S combed yarn averaged 22,861 yuan/ton, 403 yuan/ton below domestic equivalents. However, if domestic prices remain firm while international prices lag, the spread could widen further, eroding competitiveness of domestic yarn and accelerating import substitution.
Domestic macro conditions provide a floor for prices. June PMI rose to 50.3%, returning to expansion, while industrial profits grew 18.8% year-on-year. The China Council for the Promotion of International Trade reports textile and leather sectors remain among the top three for overseas exhibitions, indicating resilient trade activity. However, tensions in the Strait of Hormuz threaten oil prices, potentially raising costs for polyester staple fiber and indirectly supporting cotton prices.