Domestic cotton prices experienced a roller-coaster week, surging to the highest level since April before retreating sharply. The Zhengzhou Commodity Exchange cotton futures main contract settled at an average of 16,205 RMB/ton for the week, up just 0.7% from the previous week, while the spot market National Cotton Price B Index averaged 17,739 RMB/ton, a modest 0.5% increase. The divergence between futures and physical prices suggests growing market disagreement about the near-term outlook.
Widening Spread, Geopolitical Risk Boost International Cotton
International cotton prices showed a markedly different, more resilient trend. The New York ICE cotton futures main contract averaged 80.49 US cents/lb for the week, a substantial 4.5% increase. The core driver was the renewed deterioration in US-Iran relations, with both sides striking each other's targets and the US reinstating sanctions on Iranian oil, directly pushing up global oil prices and fueling inflation fears. Consequently, the China Port Average (M Index) rose 3.1%, pushing the landed cost under 1% tariff to 14,533 RMB/ton, up 418 RMB/ton from the previous week. The widening price gap is enhancing the appeal of imported cotton for Chinese textile mills.
More importantly, uncertainty over US tariff policy is triggering a wave of pre-stocking by American importers. The US Trade Representative held hearings from July 7-10 on proposed new tariffs against over 60 economies, while the 10% universal tariff under Section 122 of the Trade Act of 1974 faces an adjustment window in late July. Reuters data shows US container imports rose 8.2% year-on-year in June, with shipments from China surging 27.4%. This pre-emptive buying behavior, while boosting near-term orders, raises concerns about sustainability in the second half of the year.
Lower US Crop Ratings, El Niño Threatens India Output
Supply-side uncertainties are also underpinning international prices. USDA data shows the US cotton crop rating at 46% good-to-excellent as of July 5, down 2 percentage points from the previous week and below last year's level. Persistent heat and drought in Texas are stressing dryland cotton, while the Southeast benefits from better rainfall. The US Climate Prediction Center warns that the ongoing El Niño in the Pacific is strengthening, which could disrupt the Indian monsoon and severely reduce rainfall, threatening cotton yields. Meanwhile, Brazil's June cotton exports surged 63.4% year-on-year to 217,000 tons, intensifying global supply competition.
China's Macroeconomy Improves, but Textile Margins Remain Squeezed
On the domestic front, macroeconomic data shows a moderate recovery. China's June CPI rose 1.0% year-on-year, while PPI increased 4.1%. Apparel CPI rose 1.4%, indicating recovering consumer demand. However, apparel PPI fell 1.0%, significantly below the overall industrial PPI average. This divergence clearly shows that the textile and garment sector is still struggling to pass on higher raw material costs to the market, with factory-gate prices remaining under pressure.
In Xinjiang, cotton plants have entered the late squaring to early boll-setting stage. Growth in southern areas like Aksu and Kashgar is rapid with stable boll retention, while northern Xinjiang is slightly behind but recovering with rising temperatures. However, many areas are experiencing temperatures exceeding 40°C, increasing the risk of boll shedding. National cotton commercial stocks stand at 3.1006 million tons, up 9.57% year-on-year, reinforcing the destocking theme. The textile sector remains in its traditional off-season, with mills maintaining cautious procurement and focusing on inventory reduction.
Volatility to Persist in the Near Term
The cotton market is currently caught in a tug-of-war between bullish and bearish forces. Geopolitical risks and tariff uncertainties provide short-term support for international prices, but pre-stocking by US firms has already borrowed from future demand. El Niño threatens Indian output, but Brazilian exports are filling the gap. While China's macro policy signals moderate easing, a tangible recovery in end-user demand still needs time to materialize, and the cost-pass-through problem for textile mills remains unresolved. Xinjiang's overall crop condition is normal, but heat stress and weather variability require close monitoring.