Domestic and international cotton prices diverged sharply this week. Zhengzhou futures main contract averaged 16,099 yuan/ton, up 230 yuan/ton or 1.4% week-on-week, while New York futures slipped to 77.05 cents/lb, down 0.6%. The gap reflects a dual overlay of Xinjiang output fears and global supply chain risks.
Supply Side: Xinjiang Heat and India's Acreage Drop
Xinjiang cotton is entering the critical flowering and boll-setting period, but the Central Meteorological Observatory forecasts sustained high temperatures of 37-43°C in northwest and south North China from July 1-7. Although current heat in southern Xinjiang has not caused widespread damage thanks to irrigation, the duration of heat stress and water availability will determine final yields. The expectation of a Xinjiang output shortfall is shifting from possibility to probability, directly boosting domestic spot market sentiment.
Meanwhile, India's monsoon rainfall is expected to be below normal, with Reuters reporting a 35% year-on-year decline in cotton planted area. India is the world's second-largest cotton producer, and such a drastic reduction will tighten global supply. The USDA's June 30 planted acreage report showed 9.85 million acres for 2026, up 6% year-on-year, but the easing of drought in U.S. cotton regions has already been priced in. Brazil's new crop harvest is progressing well, with 146,800 tons exported in the first 14 working days of June, up 10.6% year-on-year, but this increase cannot fully offset India's shortfall.
Demand Side: Southeast Asian Export Collapse and EU Policy Shift
Southeast Asian textile and apparel exports are experiencing a sharp contraction. Bangladesh's May exports were only $440 million, down about 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. These figures indicate a rapid cooling of global textile end-consumption. The EU began imposing fixed tariffs on cross-border small parcels under €150 on July 1, and the Ecodesign for Sustainable Products Regulation takes effect July 19, banning destruction of unsold clothing. These policies will further raise export barriers, and the downward trend in Southeast Asian textile exports is likely to continue.
Domestically, the macro picture is different. June manufacturing PMI rose to 50.3%, returning to expansion; industrial enterprise profits grew 18.8% year-on-year. According to CCPIT data, textile and apparel industry overseas exhibition projects ranked in the top three, showing resilience in traditional foreign trade sectors. But the divergence between domestic and international demand means the rise in domestic cotton prices is more supply-driven than demand-led.
Price Transmission: Yarn Fails to Follow, Polyester Substitution Emerges
Cotton price increases have not effectively passed through to downstream. Domestic C32S carded yarn averaged only 23,264 yuan/ton, down 10 yuan/ton week-on-week; imported C32S averaged 22,861 yuan/ton, 403 yuan/ton below domestic yarn. The persistently low price of imported yarn is squeezing domestic spinners' margins. More notably, polyester staple fiber fell 178 yuan/ton to 7,187 yuan/ton. Substitution of chemical fibers for cotton is strengthening, and downstream buyers may accelerate formulation adjustments under cost pressure.