Domestic cotton prices staged an independent rally this week, driven by tightening supply and weather risks. The Zhengzhou Cotton Futures main contract settled at an average of 16,099 yuan per ton, up 1.4% from the previous week. The National Cotton Price B Index rose to 17,643 yuan per ton, gaining 0.9%. The price gap between domestic and imported cotton widened further, with imported cotton costing only 14,115 yuan per ton (at 1% tariff), more than 3,500 yuan cheaper than domestic spot prices, amplifying the cost advantage of imports.
Supply Side: Xinjiang Output Concerns and India's Planting Area Plunge
Xinjiang cotton is entering the critical transition from early flowering to boll-setting. The Central Meteorological Observatory forecasts sustained high temperatures of 37-43°C in northwest and south-central North China during the first week of July, posing a direct threat to cotton boll setting. Although irrigation in southern Xinjiang fields is currently adequate, if the heatwave lasts beyond expectations, per-unit yields could face substantive downward revisions. This has strengthened market consensus for a reduced 2026/27 Xinjiang crop, becoming the core driver of domestic cotton price gains.
Overseas supply is also sending tightening signals. India's Meteorological Department expects July monsoon rainfall to be below normal, with Reuters reporting a 35% year-on-year decline in India's cotton planting area. While the USDA's June 30 planted acreage report showed US cotton area up 6% to 9.85 million acres, the yield boost from easing drought remains uncertain. Brazil's new crop harvest is progressing smoothly, with exports in the first 14 working days of June up 10.6% year-on-year, but this increase is insufficient to fully offset the supply gap caused by India's production decline.
Demand Side: EU Regulations and Southeast Asian Export Slump
In contrast to supply-side heat, demand signals are weaker. The EU began imposing fixed tariffs on cross-border small parcels under €150 from July 1, and the Ecodesign for Sustainable Products Regulation will take effect on July 19, prohibiting the destruction of unsold clothing. These policies will directly raise compliance costs for cross-border e-commerce and fast fashion brands, creating structural headwinds for textile and apparel consumption.
Data from major Southeast Asian textile exporters already reflect the pressure. In May, Bangladesh's textile and apparel exports were only $440 million, down approximately 90% month-on-month and year-on-year. Cambodia's exports were $180 million, with a similar near-90% decline. Vietnam's April exports were $3.72 billion, down 9% month-on-month and 4% year-on-year. The downward trend is likely to continue after the EU regulations take effect, meaning the upside for international cotton prices will be constrained by weak demand.
Price Transmission and Industry Response
The widening domestic-international cotton price spread is reshaping downstream procurement patterns. Imported cotton's cost advantage of over 3,500 yuan per ton is already significant for spinners. However, the outcome of the Section 301 tariff hearing and actual changes in India's cotton imports following tariff removal remain uncertain. These policy variables will directly affect the availability and cost of imported cotton.
Domestic cotton yarn prices edged down only 10 yuan per ton this week to 23,264 yuan per ton, while imported cotton yarn fell more sharply, with the weekly average down 178 yuan per ton to 22,861 yuan per ton, now 403 yuan cheaper than domestic yarn. Polyester staple fiber prices continued to decline, averaging 7,187 yuan per ton, down 2.4%. Weaker chemical fiber substitute prices will partly divert spinning demand away from cotton.