Domestic cotton prices saw a notable correction this week, with the average settlement price of Zhengzhou cotton futures main contract falling by 148 yuan/ton to 16,057 yuan/ton, a drop of 0.9%. The spot market followed suit, as the National Cotton Price B Index averaged 17,659 yuan/ton, down 80 yuan/ton from the previous week. The direct trigger for this downturn was the official announcement of the central reserve cotton sales, which quickly corrected the market's previous tight-supply expectations.
Background: Reserve Release as a Stabilizer
On July 15, China National Reserve Cotton Management Co., Ltd. announced that from July 20, a portion of central reserve cotton would be sold via open auction on the National Cotton Trading Market, exclusively for textile enterprises. The starting price for the first week was set at 16,291 yuan/ton, significantly below current spot market levels, offering mills a cost advantage. The policy aims to precisely ensure supply and curb speculation while easing procurement pressure on spinners.
Industry data shows that mill operating rates had recovered to 79.7% in early July, up 1.1 percentage points year-on-year, while 46.3% of surveyed mills expressed intention to purchase cotton, an increase of nearly 10 percentage points. The contradiction between recovering downstream demand and tight upstream supply forms the backdrop for the reserve release. The injection of reserve cotton effectively builds a temporary bridge over the supply-demand gap, dampening price volatility in the near term.
Industrial Impact: Narrowing Spread and Shifting Competition
Internationally, US cotton export data hit a seasonal low, and reduced drought area in major producing zones prompted the market to revise its earlier optimistic pricing. The New York cotton futures main contract averaged 80.37 cents/lb, down 0.1% week-on-week, while the International Cotton Index (M) rose slightly by 1.6% to 89.32 cents/lb due to renminbi-denominated import cost calculations, equivalent to an import cost of 14,762 yuan/ton. The domestic-foreign price spread narrowed by 310 yuan/ton, a decline of 9.7%.
Notably, Brazilian cotton exports remain extremely strong. Data from SECEX shows that daily exports in the second week of July surged 81.5% year-on-year to about 10,000 tons. Record production, price advantages, and improved logistics have cemented Brazil's position as the world's largest cotton exporter, creating sustained competitive pressure on US cotton. Meanwhile, the US Trade Representative plans to impose 25% tariffs on thousands of Brazilian goods starting July 22, including apparel. This trade friction may further weaken US cotton export competitiveness, while a potential depreciation of the Brazilian real could enhance Brazilian cotton's export appeal.
Domestically, cotton yarn and polyester staple fiber prices both edged up this week. The C32S combed yarn average rose 20 yuan/ton to 23,318 yuan/ton, while imported yarn averaged 22,900 yuan/ton, maintaining a spread of 418 yuan/ton. Polyester staple fiber prices climbed 223 yuan/ton to 7,455 yuan/ton, reflecting ongoing substitution dynamics between cotton and chemical fibers.