Xinjiang output reduction expectations combined with accelerating commercial inventory drawdown pushed the center of gravity of domestic cotton prices higher over the past week. The Zhengzhou Cotton Futures main contract settled at an average of 16,099 yuan per ton, up 230 yuan or 1.4% week-on-week; the National Cotton Price B Index rose to 17,643 yuan per ton, a weekly gain of 0.9%. In contrast, international cotton prices edged lower due to macro headwinds and easing drought in US cotton regions, with the ICE cotton main contract averaging 77.05 cents per pound, down 0.50 cent. The domestic-international price spread widened further.
Supply-demand divergence: major producers show stark contrasts
Global cotton supply is showing significant divergence. The USDA's latest acreage report indicates that 2026 US cotton planted area reached 9.85 million acres, up 6% year-on-year, with squaring and boll setting progress improving. Brazil's new crop harvest is ahead of schedule, with exports in the first 14 working days of June reaching 146,800 tons, 10.6% higher than the same period in 2025.
But India tells a different story. The Indian Meteorological Department forecasts July monsoon rainfall below normal, and Reuters reports that India's cotton planting area has dropped 35% year-on-year. Insufficient monsoon rains directly threaten yields. If subsequent rainfall does not improve, India's cotton production could face further downward revisions. This divergence means global supply growth will rely heavily on the Americas, while the South Asian production gap will likely widen.
Weather variable: Xinjiang heatwave becomes short-term core disruption
The domestic market's focus is on Xinjiang. Cotton across the region has entered early flowering, with growth progress generally on par with normal years. However, some areas in southern Xinjiang have experienced periodic high temperatures, increasing evapotranspiration and raising field management difficulty. The Central Meteorological Observatory forecasts sustained high temperatures of 37-43°C in northwest and north China from July 1 to 7. As cotton enters the peak boll-setting period, the duration of heat stress, water and fertilizer supply capacity, and extreme weather evolution will become core determinants of final per-unit yield.
Xinjiang output reduction expectations have already been priced in, but actual yield damage from heatwaves would reinforce the tightening narrative. Commercial inventories continue to deplete, and the pace of Xinjiang cotton shipment out of the region has accelerated. However, downstream textile mills remain cautious, with strong wait-and-see sentiment.
Demand-side pressure: EU regulations and Southeast Asian export slump create dual drag
Negative signals from the demand side are multiplying. The EU began imposing fixed tariffs on cross-border small parcels under 150 euros from July 1, and the Ecodesign for Sustainable Products Regulation will take effect on July 19, banning the destruction of unsold clothing. These policies will directly raise import costs in the European market, curb the fast-fashion cross-border e-commerce model, and impact textile and apparel exporting countries, especially in Southeast Asia.
Data already reflect this trend. In May, Bangladesh's textile and apparel exports were only $440 million, plummeting 90% both 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. The continued decline in Southeast Asian textile exports implies that global cotton consumption is contracting, which will suppress cotton price upside in the medium to long term.
Policy and geopolitical risks: tariff hearings and Strait of Hormuz alert
The market is closely watching the outcome of the US Section 301 tariff hearing and actual changes in India's cotton import volume after the tariff removal. Policy uncertainty has led to cautious purchasing across the supply chain, slowing procurement pace. Meanwhile, renewed US-Iran military conflict has heightened concerns over shipping safety in the Strait of Hormuz, fueling oil price rebound expectations, which will transmit cost pressures to man-made fibers (e.g., polyester staple fiber) and cotton transportation.
Domestic macro conditions are relatively optimistic. The June manufacturing PMI rose to 50.3%, returning to expansion territory; industrial enterprise profits increased 18.8% year-on-year; textile and apparel remained among the top three sectors for overseas exhibition participation. The divergence between domestic and foreign demand means cotton prices will be more supply-driven than demand-driven.