Domestic cotton prices experienced a rally-and-retreat pattern this week, driven by the interplay between ongoing commercial inventory destocking and market expectations of reserve releases. The Zhengzhou Cotton Futures main contract averaged 16,205 yuan per ton, up 0.7% week-on-week, but after hitting its highest intraday level since April, gains were quickly erased. The China National Cotton Price B Index rose to 17,739 yuan per ton, a 0.5% increase.
In contrast, international markets saw a much sharper rise. The New York Cotton Futures main contract averaged 80.49 US cents per pound, surging 4.5% from the previous week and reclaiming the 80-cent threshold. The International Cotton Index (M) averaged 87.94 cents per pound, up 3.1%, translating to an import cost of 14,533 yuan per ton under a 1% tariff, an increase of 418 yuan per ton. The domestic-international spread widened to approximately 3,206 yuan per ton, making imported cotton significantly more cost-competitive.
Geopolitical and Tariff Dual Pressures
The rally in international cotton prices was underpinned by two key drivers. First, escalating Middle East geopolitical risks—US-Iran mutual strikes and the reinstatement of US sanctions on Iranian oil—pushed up crude oil prices and heightened global inflation concerns. Second, US trade policy uncertainty resurfaced with hearings on proposed tariffs against over 60 economies and the impending adjustment window for the 10% universal tariff under Section 122 of the Trade Act of 1974. In response, US companies accelerated stockpiling, with June container imports rising 8.2% year-on-year, and Chinese imports surging 27.4%, according to Reuters.
This front-loading behavior effectively pulls future demand forward. Once tariff policies are finalized or geopolitical tensions ease, accumulated inventories could become a price drag. For Chinese textile exporters, the current surge in orders warrants caution regarding sustainability.
Supply-Side Concerns: Lower US Crop Ratings, El Niño Threatens India
USDA data shows that as of July 5, the US cotton crop rated good to excellent stood at 46%, down 2 percentage points from the previous week and also down 2 points year-on-year. Persistent high temperatures and low soil moisture in Texas are stressing dryland cotton, while southeastern regions are faring better with adequate rainfall. The crop has entered the squaring and early boll-setting stages, slightly ahead of the normal pace, but declining condition ratings raise concerns for final yields.
In India, the US Climate Prediction Center reported that the ongoing El Niño is intensifying, risking monsoon failure and severe rainfall deficits that could significantly impact cotton yields. As the world's second-largest cotton producer, any output loss in India would directly affect global supply-demand balances. Brazil, meanwhile, exported 217,000 tons of cotton in June, up 63.4% year-on-year, becoming a key supply supplement.
Domestic Market: Inventory Drawdown but Terminal Pressure Remains
According to the China National Cotton Exchange, commercial inventories stood at 3.1006 million tons, up 9.57% year-on-year. Despite the high absolute level, the pace of destocking has accelerated, and coupled with expectations of reserve releases, market sentiment was temporarily boosted. However, the textile sector remains in its traditional off-season, with mills maintaining cautious purchasing and prioritizing inventory reduction.
Consumer demand shows a modest recovery. June CPI rose 1.0% year-on-year, with apparel CPI up 1.4%. Yet the apparel sub-index of PPI fell 1.0% year-on-year, significantly underperforming the overall industrial PPI increase of 4.1%, indicating poor cost pass-through and persistent pressure on textile and garment factory-gate prices.
Xinjiang Crop on Track, High Heat Tests Boll Stage
Most cotton fields in Xinjiang are in the late squaring to flowering and boll-setting stages. In southern Xinjiang (Aksu, Kashgar), plants are developing rapidly with stable boll set. In northern Xinjiang, growth is slightly behind but recovering with rising temperatures. Recent heatwaves with temperatures exceeding 40°C in many areas raise the risk of boll shedding, requiring enhanced water and fertilizer management. The Yellow River and Yangtze River basins have also entered the boll stage, with excessive rainfall in some areas necessitating pest and disease control.