Driven by Xinjiang output reduction expectations and continuous commercial inventory drawdown, domestic cotton prices charted an independent upward trajectory this week. The Zhengzhou Cotton Futures main contract settlement averaged 16,099 yuan/ton, up 230 yuan/ton from the previous week, a 1.4% increase. The National Cotton Price B Index also rose to 17,643 yuan/ton, a weekly gain of 0.9%. In contrast, international cotton prices were dragged down by macroeconomic headwinds, with the New York futures main contract averaging 77.05 cents/lb, down 0.6% week-on-week. The domestic-import spread has widened further, with imported cotton's cost in yuan at just 14,115 yuan/ton, over 3,500 yuan/ton below domestic spot prices. This price structure is reshaping downstream procurement decisions.
Supply Side: Divergent Weather Risks Amplify Output Uncertainty Weather conditions across major global cotton-producing regions are diverging sharply. Xinjiang cotton areas have fully entered the early flowering stage, with generally favorable light and heat conditions so far. However, the Central Meteorological Observatory forecasts that from July 1-7, persistent high temperatures of 37-43°C will hit northwestern and north-central China. As cotton enters the peak flowering and boll-setting period, the duration of heat stress and water-fertilizer management capacity will become core variables determining final yields. Some southern Xinjiang cotton regions have already experienced periodic high temperatures, increasing evapotranspiration and raising field management difficulty.
In India, the meteorological department expects July monsoon rainfall to be below normal. Reuters reports that planted area has shrunk 35% year-on-year, a decline far exceeding market expectations. If monsoon precipitation remains weak, India's cotton output prospects will further deteriorate. Brazil's new cotton harvest is progressing smoothly, with exports reaching 146,800 tons in the first 14 working days of June, 10.6% higher than the same period last year. However, Brazil's incremental supply is insufficient to offset the gap left by India's production shortfall.
The USDA's June 30 planted acreage report shows 2026 US cotton planted area at 9.85 million acres, up 6% year-on-year. Yet this data has not changed the overall tightening trend in global stocks. Drought conditions in US cotton regions have recently eased, but squaring and boll-setting progress still requires close monitoring.
Demand Side: Macro Headwinds and Policy Barriers Accumulate Headwinds on the demand side are intensifying. The EU, effective July 1, imposed fixed tariffs on cross-border small parcels valued under €150, and the Ecodesign for Sustainable Products Regulation, which bans destruction of unsold clothing, takes effect July 19. These two policies will directly raise costs for cross-border e-commerce and small-volume trade, suppressing textile and apparel exports from Southeast Asia. Data already confirms this trend: Bangladesh's textile and apparel exports in May were only $440 million, down approximately 90% both month-on-month and year-on-year. Cambodia's exports were $180 million, also falling nearly 90%. Vietnam's April exports reached $3.72 billion, down 9% month-on-month and 4% year-on-year.
Renewed US-Iran military conflict has raised concerns about shipping safety in the Strait of Hormuz, pushing up international oil price expectations. This will transmit through the textile chain via chemical fiber raw materials like polyester staple fiber. Domestic polyester staple fiber weekly average price has already fallen to 7,187 yuan/ton, a 2.4% weekly drop, but if oil prices rebound, chemical fiber costs face upward pressure.
Domestic fundamentals are relatively optimistic. June's manufacturing PMI rose to 50.3%, returning to expansion territory, and industrial enterprise profits above designated size grew 18.8% year-on-year. CCPIT data shows textile, apparel, and leather products companies ranked among the top three sectors for overseas exhibition participation, indicating continued foreign trade resilience. However, the wide domestic-import spread means imported cotton holds a clear price advantage, forcing textile enterprises to make more flexible raw material procurement choices.
Price Outlook: Range-bound Strength Unlikely to Shift Soon Overall, the global cotton supply-demand balance is tightening, with weather risks in major producing regions transitioning from expectation to reality. If Xinjiang's high temperatures persist, they will further reinforce output reduction expectations. The impact of India's sharp acreage decline will become concentrated when new crop arrives. Domestic commercial inventory depletion also provides a floor for cotton prices.
However, upside space faces constraints. After EU new regulations take effect, Southeast Asian textile and apparel export declines may continue, weakening global cotton consumption. The results of the US Section 301 tariff hearing and actual import volumes following India's removal of cotton import tariffs are two major variables the market is watching. Before these uncertainties clear, cotton prices will likely maintain range-bound strength, but the impetus for a sustained rally is insufficient.