Domestic cotton prices staged an independent rally this week, with the Zhengzhou cotton futures main contract settlement average reaching 16,099 yuan per ton, up 230 yuan from the previous week, a 1.4% increase. The National Cotton Price B index also rose to 17,643 yuan per ton, a weekly gain of 0.9%. This contrasts sharply with the mild retreat in international prices: the New York cotton futures main contract averaged 77.05 cents per pound, down 0.6% from the prior week, while the International Cotton Index M averaged 85.26 cents per pound, with a larger 1.3% decline. The widening price gap is subtly reshaping import procurement windows.
Supply Side: Output Reduction Expectations and Weather Risks Converge
The Xinjiang cotton region is the core variable driving the current price strength in China. Cotton across Xinjiang has generally entered the early flowering stage, with some areas in southern Xinjiang experiencing periodic high temperatures that increase evapotranspiration and complicate field management. Although no widespread damage has occurred thanks to irrigation and precision management, the Central Meteorological Observatory forecasts a sustained heatwave of 37-43 degrees Celsius in northwest and south-central northern China during early July, posing a real threat to cotton during the boll-setting period. The duration of heat stress, water and fertilizer availability, and the evolution of extreme weather have become the core determinants of the 2026/27 per-unit yield.
Internationally, the growth conditions of major cotton-producing countries are diverging sharply. The USDA's June 30 planted acreage report shows 2026 U.S. cotton planted area at 9.85 million acres, up 6% year-on-year, with overall progress in planting, squaring, and boll-setting improving. However, the Indian Meteorological Department has indicated that July monsoon rainfall is expected to be below normal, and Reuters reports that Indian cotton planting area has plummeted 35% year-on-year. Brazil's new crop harvest is proceeding smoothly, with exports in the first 14 working days of June reaching 146,800 tons, 10.6% higher than June 2025, accelerating the export pace.
The global supply-demand balance is tightening. Xinjiang's output expectations and India's sharp acreage reduction, combined with only modest U.S. production gains, are narrowing supply elasticity. For buyers, this means the pricing center for forward contracts may shift upward, increasing the necessity of securing supplies early.
Demand Side: Macro Headwinds and Trade Rule Restructuring
Pressure on the demand side is equally significant. The EU has imposed fixed tariffs on cross-border small parcels valued under 150 euros starting July 1, and the Ecodesign for Sustainable Products Regulation takes effect July 19, banning the destruction of unsold clothing. These two policies combined will directly raise the threshold and cost of Chinese textile and apparel exports to Europe, especially affecting small and medium-sized cross-border e-commerce sellers.
The declining trend in Southeast Asian textile and apparel exports further confirms global demand weakness. In May, Bangladesh's export value was only $440 million, plunging 90% both month-on-month and year-on-year; Cambodia's exports were $180 million, with a nearly 90% decline; in April, Vietnam's exports were $3.72 billion, down 9% month-on-month and 4% year-on-year. After the EU rules take effect, this downward trend is likely to continue.
Domestically, macro data is sending positive signals. The June Manufacturing PMI stood at 50.3%, up 0.3 percentage points month-on-month, returning to expansion territory. Profits of industrial enterprises above the designated size grew 18.8% year-on-year, indicating a sustained improvement in industrial operations. Data from the China Council for the Promotion of International Trade shows that textile, apparel, and leather products rank among the top three industries in terms of overseas exhibition participation, demonstrating the resilience of traditional foreign trade sectors.
Price Transmission: Chain Reactions in Yarn and Chemicals
The upward movement in cotton prices is beginning to transmit downstream. This week, the domestic C32S carded yarn average price was 23,264 yuan per ton, down slightly by 10 yuan from the previous week, essentially stable. However, the average price of imported C32S carded yarn fell by 178 yuan to 22,861 yuan per ton, now 403 yuan lower than domestic yarn, widening the price advantage of imported yarn. Polyester staple fiber prices continued their decline, with the weekly average falling 178 yuan to 7,187 yuan per ton, widening the price gap with cotton, which will prompt some spinners to increase the proportion of chemical fibers in their blends.
For weaving and garment enterprises, rising raw material costs are compressing profit margins. Cotton yarn prices remain relatively firm, but there is a lag in the pass-through of terminal order prices, meaning the margin squeeze in the intermediate links may become concentrated in the next 1-2 months.