China's cotton market experienced a volatile week, with prices initially rallying before retreating. The Zhengzhou Commodity Exchange cotton futures main contract averaged 16,205 yuan per ton, up 106 yuan or 0.7% from the previous week. The contract touched its highest level since April during the session before falling back on market expectations of state reserve sales. The National Cotton Price B Index, representing standard-grade lint, averaged 17,739 yuan per ton, up 96 yuan or 0.5% week-on-week.
In stark contrast, international cotton prices surged strongly. The New York cotton futures main contract averaged 80.49 US cents per pound, up 3.44 cents or 4.5% from the prior week, reclaiming the 80-cent threshold. This rally was driven by escalating geopolitical risks and tariff policy uncertainties. The deteriorating US-Iran situation, including mutual military strikes and the reinstatement of US sanctions on Iranian oil, pushed up global oil prices and fueled inflation concerns.
Adding to the uncertainty, the US Trade Representative held hearings from July 7-10 on proposed new tariffs targeting over 60 economies. The 10% universal tariff under Section 122 of the Trade Act of 1974 is also set for a potential adjustment in late July. This dual pressure prompted US companies to accelerate pre-stocking. Reuters data shows US container imports rose 8.2% year-on-year in June, with Chinese imports surging 27.4%, suggesting some future demand has been pulled forward.
On the supply side, the USDA reported 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 2 points lower than last year. Hot and dry conditions in Texas are stressing dryland cotton, while the US Climate Prediction Center warned that the strengthening El Niño could disrupt the Indian monsoon, threatening cotton yields there. Brazil exported 217,000 tons of cotton in June, up 63.4% year-on-year, according to SECEX data.
Domestically, Xinjiang cotton is in the flowering to boll-setting stage. While growth in southern Xinjiang is robust, temperatures exceeding 40°C in some areas raise the risk of boll shedding. National cotton commercial inventories stood at 3.1 million tons, up 9.57% year-on-year. The textile sector remains in a traditional off-season, with mills cautious in procurement and focused on destocking.
In the yarn market, domestic C32S combed yarn averaged 23,298 yuan per ton, up slightly by 34 yuan. Imported C32S yarn averaged 22,821 yuan per ton, down 40 yuan, widening the price gap to 477 yuan per ton. Polyester staple fiber rose 45 yuan to 7,232 yuan per ton. Macro data showed China's June CPI rose 1.0% year-on-year, with clothing CPI up 1.4%, indicating moderate consumer recovery. However, clothing PPI fell 1.0%, lagging the overall industrial PPI increase of 4.1%, highlighting persistent margin pressure for textile firms.
Overall, the market remains caught between conflicting forces. Internationally, pre-stocking by US firms has borrowed from future demand, while supply risks from US crop conditions and Indian weather provide a floor. Domestically, inventory drawdown is ongoing but stocks remain high year-on-year, with reserve sale expectations capping upside potential. Given the seasonal lull in textile demand, cotton prices are likely to consolidate in the near term.