Xinjiang cotton regions are bracing for extreme heat, with the Central Meteorological Observatory forecasting temperatures between 37 and 43 degrees Celsius in northwest and south North China during early July. This weather window coincides with the critical blooming and boll-setting stage, directly threatening yield levels. Meanwhile, domestic commercial inventories continue to decline, pushing the Zhengzhou Cotton Futures main contract weekly average to 16,099 yuan per ton, up 230 yuan from the previous week. The combination of tightening supply and weather risks is reshaping market expectations for short-term price movements.
Supply Side: Xinjiang Output Fears and Global Divergence
Xinjiang's cotton production remains generally stable, but the duration of heat stress, water and fertilizer availability, and extreme weather evolution have become core variables determining final yields. Some southern Xinjiang cotton areas have already experienced periodic high temperatures, increasing field management difficulty due to higher evapotranspiration. Fortunately, irrigation guarantees and precision management have so far prevented large-scale disasters. However, as cotton enters the peak blooming and boll-setting period, any sustained heat could materially impact output.
Global production trends among other major growers are clearly diverging. The latest USDA acreage report shows 2026 US cotton planted area at 9.85 million acres, up 6% year-on-year, with squaring and boll-setting progress generally improving. However, India's Meteorological Department predicts July monsoon rainfall will be below normal, and Reuters reports that Indian cotton planting area has fallen 35% year-on-year. Brazil's new crop harvest is progressing smoothly, with exports in the first 14 working days of June reaching 146,800 tons, up 10.6% from the same period in 2025.
- US acreage expansion and Indian cuts offset each other, keeping the global supply-demand balance tight overall.
- Faster Brazilian exports partially alleviate short-term supply pressure.
- Xinjiang weather risk remains the most sensitive price driver in the current market.
Demand Side: EU Policy Tightening and Southeast Asian Export Slump
Uncertainty on the demand side is intensifying. The EU began imposing fixed tariffs on cross-border small parcels valued under 150 euros on July 1, and the Ecodesign for Sustainable Products Regulation takes effect July 19, banning the destruction of unsold clothing. These two policies are expected to create significant headwinds for textile and apparel consumption, particularly hitting Southeast Asian countries that rely heavily on e-commerce parcel exports.
Southeast Asian major countries have already seen widespread declines in textile and apparel exports. In May, Bangladesh's exports were only $440 million, down about 90% 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. This trend is unlikely to reverse in the near term, meaning demand support for international cotton prices is weakening.
Domestically, improving macro sentiment provides a floor. The June PMI stood at 50.3%, up 0.3 percentage points from the previous month and returning to expansion territory. Profits of industrial enterprises above designated size grew 18.8% year-on-year, and traditional foreign trade advantage industries like textiles and apparel still rank among the top in overseas exhibition participation. However, whether domestic demand can fully offset external demand weakness remains to be seen.
Price Transmission: Widening Domestic-International Spread and Substitution Pressure
The divergence between domestic and international cotton prices is widening. Zhengzhou Cotton Futures main contract weekly average was 16,099 yuan/ton, up 1.4% from the previous week; the National Cotton Price B Index averaged 17,643 yuan/ton, up 0.9%. In contrast, the New York Cotton Futures main contract averaged 77.05 US cents/lb, down 0.6% from the previous week; the International Cotton Index (M) averaged 85.26 US cents/lb, down 1.3%. Imported cotton cost at a 1% tariff was 14,115 yuan/ton, down 222 yuan from the previous week, further widening the domestic-international spread.
Cotton yarn prices showed weakness. Domestic C32S carded yarn weekly average was 23,264 yuan/ton, down slightly by 10 yuan; imported C32S carded yarn averaged 22,861 yuan/ton, down 178 yuan, and was 403 yuan lower than domestic yarn. Polyester staple fiber prices continued to fall, with a weekly average of 7,187 yuan/ton, down 178 yuan. Lower chemical fiber substitute prices are exerting some pressure on cotton prices.
- The widening spread makes imported cotton more cost-effective.
- Cotton yarn prices are struggling to follow fiber price increases, squeezing downstream weaving mill margins.
- Falling polyester staple fiber prices reduce cotton demand elasticity.