This week marked a critical turning point for the cotton market: the official announcement of China's central reserve cotton release directly reversed earlier expectations of tight supply. Zhengzhou cotton futures main contract averaged 16,057 yuan/ton, down 0.9% from the prior week, while the spot market's National Cotton Price B index fell 0.5% in tandem. The domestic-international price spread narrowed by 310 yuan/ton, a 9.7% decline, signaling that imported cotton is becoming marginally more competitive—a shift that will directly impact mills' procurement strategies.
Event Background
On July 15, China National Cotton Reserves Corporation issued the official notice for the reserve cotton auction, set to begin July 20 via the National Cotton Trading Market, with participation limited to textile mills. The first-week floor price of 16,291 yuan/ton is significantly below current spot levels, a clear policy signal aimed at precise supply support and speculation deterrence. From an industry perspective, the release directly increases domestic cotton availability, easing mills' procurement anxiety—especially for small and medium-sized enterprises—and offering a tangible cost relief window.
Internationally, U.S. cotton export data hit a season low, while drought areas in key growing regions shrank, prompting a swift market correction of earlier optimistic pricing. New York cotton futures main contract averaged 80.37 cents/lb, down 0.1%, but the International Cotton Index (M) averaged 14,762 yuan/ton on a landed basis, up 1.6%. The narrowing spread is largely driven by Brazil's export surge—second week of July daily exports up 81.5% year-on-year—cementing Brazil's position as the world's top exporter and persistently pressuring U.S. cotton.
Industry Impact
The immediate effect of the reserve release is to cap near-term domestic price upside, but the deeper implication lies in reshaping mills' procurement rhythm. Current mill operating rates stand at 79.7%, up 1.1 percentage points year-on-year, with 46.3% of mills planning to purchase cotton, up 9.9 points. This indicates downstream demand is modestly recovering, but mills have limited appetite for high-priced cotton. With reserve cotton priced below spot, some mills will defer imported cotton purchases in favor of auction participation, creating a substitution effect on import demand in the short term.
Downstream, domestic C32S carded yarn averaged 23,318 yuan/ton, up only 0.1%, while imported yarn averaged 22,900 yuan/ton, maintaining a 418 yuan/ton price advantage. Polyester staple fiber rose 223 yuan/ton to 7,455 yuan/ton, reflecting potential substitution pressure on cotton. For fabric and apparel buyers, stable cotton prices narrow cost volatility, aiding fixed-price order quotes, but they should watch for further downside from Brazilian export volume.
Macro-wise, U.S. tariff policy continues to roil markets: the Treasury paid $49.2 billion in tariff refunds in June due to court rulings, widening the deficit to $120 billion, while the U.S. plans 25% tariffs on Brazilian goods including apparel and motors. This heightens global trade uncertainty—a weaker Brazilian real would further boost Brazil's cotton export competitiveness. Domestically, H1 retail sales grew 1.3% year-on-year, with apparel and textile sales up 6.7%, significantly outperforming overall consumption, providing a floor for textile demand.