Domestic cotton prices experienced a rally and retreat this week, briefly hitting their highest level since April before quickly giving back gains. The Zhengzhou Cotton Futures main contract averaged 16,205 yuan per ton for the week, up only 0.7% from the previous week. Meanwhile, international cotton prices strengthened significantly under the dual pressures of escalating US-Iran conflict and tariff policy uncertainty, pushing back above the 80-cent mark. The New York futures main contract averaged 80.49 cents per pound, a 4.5% increase. The widening price gap between domestic and international markets—with import cotton costing approximately 14,533 yuan per ton on a 1% tariff basis, over 3,000 yuan lower than the domestic B-index price—is directly influencing downstream mills' procurement decisions.
Geopolitics and Tariff Expectations: Key Drivers for International Markets
The US-Iran situation deteriorated sharply this week, with both sides striking each other's targets and the US reinstating sanctions on Iranian oil. This chain reaction pushed up international oil prices, heightened global inflation expectations, and provided a risk premium to commodities like cotton. Simultaneously, the US Trade Representative held hearings from July 7-10 on proposed new tariffs on 60 economies, and the 10% universal tariff under Section 122 of the Trade Act of 1974 faces an adjustment window in late July. Tariff uncertainty has prompted US companies to accelerate purchasing, with Reuters data showing US container imports rose 8.2% year-on-year in June, including a 27.4% surge from China. While this front-loading supports international prices in the short term, it also borrows from future demand.
Supply-side factors also support international prices. USDA data shows US cotton quality ratings fell to 46% as of July 5, down 2 points from the previous week and 2 points year-on-year. Persistent high temperatures and low soil moisture in Texas are stressing dryland cotton. The El Niño phenomenon continues to strengthen, and the US Climate Prediction Center warns this could lead to deficient monsoon rainfall in India, threatening cotton yields. Brazil's Foreign Trade Secretariat reports June cotton exports of 217,000 tons, up 63.4% year-on-year, as South American supply rapidly fills global markets.
Domestic Inventory Drawdown and Policy Expectations: Near-Term Dynamics
The core tension in China's domestic market lies between ongoing commercial inventory drawdown and expectations of policy intervention. The National Cotton Trading Market reports current commercial inventories at 3.1006 million tons, up 9.57% year-on-year, but market attention has shifted to rumors of state reserve sales. The National Cotton Price B-index averaged 17,739 yuan per ton, up only 0.5%, indicating spot prices lack momentum.
Downstream textile mills remain in the traditional off-season, maintaining cautious purchasing and focusing on destocking. Domestic C32S combed yarn averaged 23,298 yuan per ton, up just 0.1%, while imported yarn of the same specification averaged 22,821 yuan per ton, a 477 yuan discount. Polyester staple fiber rose 45 yuan to 7,232 yuan per ton, making chemical fiber substitution more prominent during the slack season.
Macro data shows China's June CPI rose 1.0% year-on-year, with clothing CPI up 1.4%, indicating modest consumption recovery. However, clothing PPI fell 1.0% year-on-year, well below the overall industrial PPI increase of 4.1%, reflecting continued pressure on textile and apparel factory-gate prices amid incomplete upstream cost pass-through and intense competition.
New Crop Weather: A Variable to Watch
Xinjiang cotton regions are generally normal, entering the boll-setting stage. Plants in southern Xinjiang's Aksu and Kashgar are developing quickly with stable boll counts, while northern Xinjiang's growth is slightly behind but recovering with rising temperatures. Recent heatwaves exceeding 40°C in parts of Xinjiang may increase boll shed risk, requiring enhanced water and fertilizer management. The Yellow River and Yangtze River basins have also entered the boll-setting stage, with excessive rainfall in some areas raising concerns about pests and field moisture.
With multiple bullish and bearish factors at play, both domestic and international cotton prices are expected to remain volatile in the coming week. Key domestic variables include the timing and scale of any reserve sales, while international markets will focus on US-Iran developments, the final shape of US tariff policy, and El Niño's actual impact on Indian cotton production.