In early July 2026, the cotton price trajectory clearly delineated two distinct paths: domestic prices steadily climbed, driven by Xinjiang production concerns and accelerating commercial inventory depletion, while international prices narrowly fluctuated, suppressed by macro headwinds and improved weather in US cotton regions. This week, the main contract of Zhengzhou Cotton Futures averaged 16,099 yuan per ton, up 230 yuan from the previous week. The National Cotton Price B Index also rose, averaging 17,643 yuan per ton.
Supply Tightening and Weather Risks
The core driver of domestic price increases comes from the supply side. Xinjiang cotton regions have fully entered the early flowering stage, but the Central Meteorological Observatory forecasts sustained high temperatures of 37 to 43 degrees Celsius in northwest and south North China in early July, directly threatening cotton squaring, flowering, and boll setting. The duration of heat stress, water and fertilizer availability, and extreme weather evolution have become the core variables determining 2026 unit yields. Meanwhile, commercial inventory depletion combined with Xinjiang production reduction expectations has further amplified market concerns about tightening supply.
Internationally, the USDA's June 30 planted acreage report indicated 2026 US cotton planted area at 9.85 million acres, up 6% year-on-year. However, the Indian Meteorological Department expects July monsoon rainfall to be below normal, and Reuters reported Indian cotton planting area down 35% year-on-year, partially offsetting the bearish impact of US production increases. Brazilian new crop harvesting is progressing smoothly, with exports of 146,800 tons in the first 14 working days of June, up 10.6% from June 2025.
Downstream Transmission and Policy Disruptions
Cotton price increases have not yet effectively transmitted downstream. Domestic C32S combed yarn average price fell 10 yuan per ton to 23,264 yuan per ton, while imported C32S combed yarn fell 178 yuan to 22,861 yuan per ton, widening the domestic-import spread to 403 yuan, making imported yarn more competitive. Polyester staple fiber prices continued to decline, averaging 7,187 yuan per ton, down 178 yuan, maintaining substitution pressure on cotton.
Policy disruptions cannot be ignored. The EU imposed fixed tariffs on cross-border small parcels under 150 euros from July 1, and the Ecodesign for Sustainable Products Regulation takes effect July 19, banning destruction of unsold clothing. These policies will directly raise end costs for cross-border e-commerce apparel, suppressing textile and garment exports from Southeast Asia. Recent data shows Bangladesh's May textile exports were only $440 million, down 90% month-on-month and year-on-year; Cambodia's exports fell 87% to $180 million. Vietnam's April exports were $3.72 billion, down 9% month-on-month and 4% year-on-year. The downward trend in Southeast Asian textile exports is likely to continue.
Macro Environment and Market Sentiment
Domestic macro indicators are sending positive signals. June manufacturing PMI was 50.3%, up 0.3 percentage points, returning to expansion territory. Profits of industrial enterprises above designated size rose 18.8% year-on-year, indicating improving profitability. In foreign trade, data from the China Council for the Promotion of International Trade shows that machinery, textile and leather products, and transportation logistics remain the top three industries for overseas exhibitions, demonstrating sustained foreign trade vitality.
The market is currently in a wait-and-see mode. The outcome of the US Section 301 tariff hearing and actual changes in Indian cotton imports after tariff removal will be key variables determining short-term direction. With supply tightening, weather risks intensifying, and policy uncertainties coexisting, cotton prices are likely to maintain a strongly fluctuating pattern.