Domestic cotton prices staged an independent rally this week, with the Zhengzhou Cotton Futures main contract settling at an average of 16,099 yuan/ton, up 230 yuan/ton from the previous week. In contrast, international cotton prices edged lower, with the New York futures main contract averaging 77.05 cents/lb, down 0.5 cents/lb. The spread between domestic and import cotton has widened significantly, with import cotton landed in China costing 14,115 yuan/ton—over 3,500 yuan/ton cheaper than domestic spot prices.
Supply Concerns and Inventory Drawdown Boost Domestic Prices
The prospect of lower Xinjiang cotton output is the key driver behind the domestic price rally. Although cotton across Xinjiang has entered the early flowering stage, the China Meteorological Administration forecasts persistent extreme heat of 37-43°C in northwest and south-central North China in early July. As cotton moves into the peak boll-setting period, the duration of heat stress and water-fertilizer management will be decisive for final yields.
Commercial inventory depletion is reinforcing the supply-tight narrative. The National Cotton Price B Index averaged 17,643 yuan/ton this week, up 166 yuan/ton from a week ago. However, downstream yarn prices have not followed suit—domestic C32S combed yarn averaged just 23,264 yuan/ton, down 10 yuan/ton, while import C32S yarn averaged 22,861 yuan/ton, down 178 yuan/ton and still 403 yuan/ton cheaper than domestic yarn. This indicates that spinning margins are narrowing, and cost pressures are not being passed through effectively.
Divergent Production Trends Globally Tighten the Supply Picture
The USDA's June 30 planted acreage report confirmed 2026 U.S. cotton acreage at 9.85 million acres, up 6% year-on-year. In India, however, the meteorological department forecasts below-normal monsoon rainfall in July, and Reuters reports that Indian cotton planting area has fallen 35% year-on-year. Brazil's new-crop harvesting is progressing well, with exports reaching 146,800 tons in the first 14 working days of June, up 10.6% from June 2025.
Global cotton supply-demand dynamics are tightening, but regional divergences are stark. The U.S. acreage increase offsets part of India's decline, but any actual output loss from Xinjiang's weather risks would further widen the global supply gap.
EU Regulations Bite as Southeast Asian Textile Exports Plunge
Two new EU regulations took effect in July: a fixed tariff on cross-border parcels under €150, and the Ecodesign for Sustainable Products Regulation banning the destruction of unsold clothing. These measures will directly raise export costs for Chinese and Southeast Asian textiles and apparel, especially hitting cross-border e-commerce channels.
Southeast Asian textile and apparel exports have already dropped sharply: Bangladesh's May exports were $440 million, down 90% month-on-month and year-on-year; Cambodia's exports were $180 million, down 88% month-on-month and 87% year-on-year; Vietnam's April exports were $3.72 billion, down 9% month-on-month and 4% year-on-year. These figures signal shrinking global textile demand, and the EU's new rules may further suppress it.
Domestic Economy Improves, but Exporters Face a Squeeze
According to the National Bureau of Statistics, the June manufacturing PMI came in at 50.3%, up 0.3 percentage points from the previous month and back into expansion territory. Profits of industrial enterprises above the designated size grew 18.8% year-on-year. Data from the China Council for the Promotion of International Trade also shows that textile, apparel, and leather products remain among the top three industries for overseas exhibitions, indicating resilience in traditional export sectors.
However, exporters are caught between firm cotton costs and weakening demand from the EU and Southeast Asia. Polyester staple fiber prices averaged 7,187 yuan/ton this week, down 178 yuan/ton, and substitution effects are strengthening, though man-made fibers cannot fully replace cotton in the short term.
Near-Term Outlook: Firm but Volatile, Watch Policy and Weather
The market is closely watching the outcome of the U.S. Section 301 tariff hearings and India's cotton import duty removal. Xinjiang weather, U.S. drought conditions, and Indian monsoon rainfall will be key supply variables. The actual enforcement of EU regulations and the pace of Southeast Asian export recovery will determine the demand side.
Cotton prices are likely to remain firm but volatile in the near term. The wide domestic-import spread may attract more import buying, capping domestic upside. Textile mills need to balance raw material procurement timing with finished goods inventory management.