The cotton textile industry stands at a crossroads of conflicting signals. Latest market data shows domestic cotton prices under pressure from the upcoming reserve cotton release, but the narrowing price gap with international cotton and global inflation concerns complicate decision-making for the supply chain.
Background: Reserve Release and Weak US Exports
China National Cotton Reserves Corporation announced on July 15 that it would auction reserve cotton starting July 20 through the National Cotton Trading Market, exclusively for textile mills. The first-week floor price of 16,291 yuan/ton is significantly below current spot prices, easing supply tightness expectations. Zhengzhou cotton futures main contract averaged 16,057 yuan/ton, down 148 yuan/ton or 0.9% week-on-week. The National Cotton Price B Index averaged 17,659 yuan/ton, down 80 yuan/ton.
Meanwhile, international headwinds mounted. US cotton export sales hit a seasonal low, and drought conditions in major producing areas eased, prompting a market correction. NY cotton futures main contract averaged 80.37 cents/lb, down 0.1%. However, the International Cotton Index M averaged 89.32 cents/lb, up 1.6% in yuan terms, narrowing the domestic-international price gap by 310 yuan/ton, a 9.7% decline. This means the cost advantage of imported cotton is fading.
Industry Impact: Supply Differentiation and Demand Resilience
The reserve release has an immediate impact on domestic supply. In early July, mill operating rates averaged 79.7%, up 1.1 percentage points year-on-year, with 46.3% of mills planning to purchase cotton, up 9.9 percentage points. The policy targets mill demand precisely to curb speculation. In the short term, domestic prices are likely to trade in a range, but downside is limited given the floor price signal.
On the demand side, domestic consumption shows resilience. National Bureau of Statistics data shows H1 2026 retail sales of apparel, footwear, and textiles above designated size grew 6.7% year-on-year, with June up 3.9%, outpacing overall retail growth. This confirms consumer spending rigidity, but export orders remain vulnerable to trade tensions.
Global cotton supply-demand dynamics are shifting. The USDA July report narrowed the 2026/27 global cotton deficit by 223,000 tons from June, with ending stocks at 15.51 million tons. Brazilian cotton exports surged, with daily exports in the second week of July up 81.5% year-on-year, cementing its position as the world's largest exporter and pressuring US cotton. US cotton areas, especially Texas, face drought; about 46% of US cotton areas are under some drought, and the next 2-3 weeks are critical for yield formation.