Domestic cotton prices have steadily risen under the dual support of Xinjiang production cut expectations and declining commercial inventories. This week, the main contract of Zhengzhou Cotton Futures settled at an average of 16,099 yuan/ton, up 230 yuan/ton, or 1.4%, from the previous week. In contrast, international cotton prices fluctuated narrowly due to macroeconomic headwinds and easing drought in US cotton regions, with the New York futures main contract averaging 77.05 cents/lb, down 0.50 cents/lb. The widening domestic-international price spread means imported cotton continues to offer a significant cost advantage—at a 1% tariff, the landed cost is only 14,115 yuan/ton, over 3,500 yuan/ton lower than domestic spot prices. This will directly impact textile mills' raw material procurement strategies.
Global Supply-Demand Tightening
Global cotton supply and demand are undergoing structural tightening. India's Meteorological Department forecasts July monsoon rainfall will be below normal, directly causing India's cotton acreage to drop 35% year-on-year, a decline far exceeding market expectations. As one of the world's largest cotton producers, India's production cut signal will significantly affect the 2026/27 global supply outlook. Meanwhile, the USDA's June 30 Acreage Report shows 2026 US cotton planted area at 9.85 million acres, up 6% year-on-year, but whether this increase can offset India's reduction remains to be seen. Brazil's new cotton harvest is progressing faster than last year, with exports in the first 14 working days of June reaching 146,800 tons, 10.6% higher than June 2025, partially alleviating supply pressure. However, the global cotton stocks-to-use ratio is likely to decline.
Xinjiang Weather Risk Becomes Key Variable
The biggest uncertainty in the domestic cotton market currently comes from Xinjiang. Cotton across Xinjiang has generally entered the early flowering stage, with favorable early light and temperature conditions supporting growth. However, the Central Meteorological Observatory forecasts sustained high temperatures of 37-43°C in northwest and south-central North China during the first week of July. Cotton is at the critical peak flowering and boll-setting stage, and continuous heat stress will directly affect pollination and boll-setting rates, thus determining final yields. Although some southern Xinjiang cotton areas have already experienced periodic high temperatures, thanks to irrigation guarantees and fine management, no large-scale disasters have occurred. However, if high temperatures persist beyond a week, water and fertilizer supply pressure will rise sharply. This means actual Xinjiang cotton output may be lower than current market expectations, further fueling domestic price upside.
Downstream Demand Faces Multiple Pressures
In contrast to tightening supply, downstream demand prospects are not optimistic. Southeast Asian major textile and apparel exporting countries have recently reported weak data: Bangladesh's May exports were only $440 million, down 90% month-on-month and year-on-year; Cambodia's exports were $180 million, down nearly 90%; Vietnam's April exports were $3.72 billion, down 9% month-on-month and 4% year-on-year. This trend is closely linked to upcoming EU regulations—the EU will impose fixed tariffs on cross-border small parcels under €150 from July 1, and the Sustainable Products Ecodesign Regulation takes effect July 19, banning destruction of unsold clothing. These policies will significantly raise export barriers for Chinese and Southeast Asian textiles to Europe, potentially further suppressing demand in the short term.
Domestically, the June manufacturing PMI rose to 50.3%, returning to expansion territory, and industrial enterprise profits grew 18.8% year-on-year, indicating some improvement in macro conditions. However, cotton yarn prices have not followed cotton prices upward—C32S combed yarn average price actually fell 10 yuan/ton to 23,264 yuan/ton, while imported yarn prices are even lower, 403 yuan/ton below domestic. This suggests downstream weaving mills remain cautious in procurement, and cost transmission is not smooth. The current cotton price increase is more supply-driven than demand-pulled.
Policy and Geopolitical Risks Compound
The renewed US-Iran military conflict has raised concerns about the safety of shipping through the Strait of Hormuz, pushing international oil price expectations higher. This will indirectly affect cotton demand through chemical fiber raw material prices such as polyester staple fiber. Domestic polyester staple fiber average price has already fallen 178 yuan/ton to 7,187 yuan/ton this week, but if oil prices continue to rise, the substitution effect of chemical fibers for cotton may weaken. Additionally, the US Section 301 tariff hearing results and changes in India's cotton import volume after tariff removal are the focus of market attention, with a strong wait-and-see sentiment prevailing.
In summary, with global cotton supply-demand tightening, Xinjiang weather risks intensifying, weak downstream demand, and policy uncertainties coexisting, cotton prices will maintain a relatively strong volatile trend in the short term, but upside potential is limited by the pace of end-use demand recovery.