Domestic cotton prices rose 230 yuan/ton week-on-week, a 1.4% gain, while international prices fell 0.50 cents/lb, a 0.6% decline. This divergence reflects the tug-of-war between Xinjiang's production-cut expectations and eased drought in US cotton regions, signaling structural shifts in global cotton supply-demand dynamics.
Supply-Side Divergence Intensifies
Xinjiang cotton regions face a severe heatwave in early July, with the Central Meteorological Observatory forecasting temperatures of 37-43°C in northwest and north-central China during the cotton's critical flowering and boll-setting period. While southern Xinjiang has maintained stable production through irrigation and precision management, the duration of heat stress, water availability, and extreme weather evolution will be key determinants of final yields.
Meanwhile, the USDA's June 30 planted acreage report shows 2026 US cotton acreage at 9.85 million acres, up 6% year-on-year. However, India's Meteorological Department predicts July monsoon rainfall below normal, and Reuters reports Indian cotton acreage down 35% year-on-year. Brazilian new-crop harvesting progresses well, with exports in the first 14 working days of June reaching 146,800 tons, 10.6% higher than June 2025.
This suggests a clear regional divergence in global cotton supply: North and South American producers are expanding, while Asia's two largest producers—China and India—face weather-related production risks. This regional disparity will directly influence subsequent trade flows.
Downstream Demand Transmission Under Pressure
Domestic cotton yarn prices fluctuated slightly, with C32S combed yarn weekly average down 10 yuan/ton to 23,264 yuan/ton, while imported equivalent yarn fell 178 yuan/ton to 22,861 yuan/ton, widening the domestic-import spread to 403 yuan/ton. This spread change indicates imported yarn is cutting prices faster, intensifying competition for domestic spinners.
Polyester staple fiber prices continued to decline, with weekly average down 178 yuan/ton to 7,187 yuan/ton, potentially strengthening substitution for cotton. For downstream weavers and apparel makers, raw material cost divergence means fabric blending strategies need reassessment.
On the demand side, two EU regulations take effect in July: fixed tariffs on cross-border small parcels under 150 euros, and the Ecodesign for Sustainable Products Regulation banning destruction of unsold clothing. These policies will raise e-commerce costs and suppress inventory digestion, adding headwinds to Chinese textile and apparel exports. Southeast Asian major countries' May textile and apparel export data already showed declines: Bangladesh exports at $440 million, down 90% month-on-month and year-on-year; Cambodia at $180 million, down 88% month-on-month and 87% year-on-year.
Macro and Policy Variables Intertwine
Domestic macro conditions are improving, with June manufacturing PMI at 50.3%, returning to expansion territory, and industrial enterprise profits up 18.8% year-on-year. CCPIT data shows textile, apparel, and leather industries still rank among the top three in overseas exhibition participation, indicating strong traditional export sector vitality.
But external uncertainties are prominent. Renewed US-Iran military tensions raise concerns about Strait of Hormuz shipping security, potentially boosting oil prices, which would transmit through chemical fiber raw material costs. Meanwhile, the US 301 tariff hearing outcome and actual import volumes following India's cotton import tariff removal are two key variables markets are watching closely.
Price Outlook
Overall, tightening global cotton supply-demand dynamics combined with major producing regions' weather risks are the dominant drivers of current price strength. However, international prices are constrained by macro headwinds and US production expansion expectations, making a sustained rally unlikely. Domestic prices are likely to maintain a firm but volatile trajectory, supported by Xinjiang production-cut expectations and declining commercial inventories, though weak downstream demand and chemical fiber substitution will cap upside.
For industry players, the core strategy now is to strengthen inventory management, use futures tools to lock in some raw material costs, and closely monitor Xinjiang heatwave evolution and Indian monsoon rainfall—these weather factors will determine the basic pattern of new-crop cotton production over the next 4-6 weeks.