The announcement of China's reserve cotton release in mid-July triggered an immediate price decline in domestic markets, with the domestic-international price spread narrowing by nearly 10%. This policy signal is reshaping raw material procurement expectations in the textile industry, while the global cotton market is experiencing structural divergence: US cotton exports fell to a seasonal low, while Brazilian cotton exports surged 81.5% year-on-year.
Market Transmission Logic of Reserve Cotton Release
On July 15, China National Cotton Reserves Corporation issued an official sales announcement, starting open竞价 sales through the National Cotton Trading Market from July 20, exclusively for textile mills. The first-week floor price of 16,291 yuan/ton was significantly below the National Cotton Price B-index of 17,659 yuan/ton, a spread exceeding 1,300 yuan/ton. This provides mills with direct cost advantages while curbing speculative demand in the spot market.
The policy impact was immediate. Zhengzhou cotton futures主力合约 averaged 16,057 yuan/ton, down 148 yuan/ton or 0.9% week-on-week; the spot B-index fell 80 yuan/ton to 17,659 yuan/ton. The domestic-international price spread narrowed by 310 yuan/ton, a 9.7% decline. For buyers, the reserve release adds predictable low-cost supply, alleviating earlier concerns about阶段性 supply tightness.
Notably, mill operating rates remained at 79.7%, up 1.1 percentage points year-on-year, with 46.3% of mills planning to purchase cotton, up 9.9 percentage points. This indicates downstream demand is not weak but waiting for better entry points. The reserve release precisely fills this demand gap.
Global Supply-Demand Rebalancing
The USDA July report showed the 2026/27 global cotton production-consumption gap narrowed by 223,000 tons from June, with ending stocks at 155.1 million tons remaining relatively high. Reduced supply tightness pressures international prices, but regional divergence is significant.
US cotton faces multiple headwinds. Export sales hit a seasonal low for the week ending July 9; the main producing region of Texas experiences ongoing high temperatures, with about 46% of planting areas under drought and good-to-excellent ratings falling 2 percentage points to 44%. The next 2-3 weeks are critical for yield formation; if hot, dry weather persists, yields may be revised down. However, expectations of reduced drought面积 have already prompted market corrections to previous optimistic pricing, with NY futures主力合约 averaging 80.37 cents/lb, down 0.1% week-on-week.
Brazilian cotton continues its strong performance. SECEX data shows Brazil exported about 80,300 tons in the second week of July, with daily exports up 81.5% year-on-year. Record production, price advantages, and logistics improvements solidify Brazil's position as the world's largest cotton exporter, exerting sustained competitive pressure on US cotton. Additionally, US plans to impose 25% tariffs on thousands of Brazilian goods from July 22, including apparel, could further weaken US cotton demand while enhancing Brazil's price competitiveness.
In India, monsoon rains have improved sowing progress, but uneven rainfall in central regions makes July-August weather a core variable for new crop output. Global inflation concerns persist; a New York Fed survey shows over 40% of firms plan to continue passing tariff costs through price increases. Brent crude oil has broken above $88/barrel, with energy and tariff factors jointly fueling global inflation expectations, potentially constraining end-consumer demand in the cotton-textile chain.
Domestic Consumption Resilience Supports Textile Demand
National Bureau of Statistics data from July 15 shows total retail sales of consumer goods in H1 2026 grew 1.3% year-on-year, with June growth turning positive to 1.0%. Retail sales of apparel, footwear, and knitwear by units above designated size grew 6.7% overall and 3.9% in June, significantly outperforming the overall retail growth. Resident apparel consumption resilience provides fundamental support for textile chain demand.
However, external demand faces challenges. US tariff policies continue affecting global trade; the Treasury paid about $49.2 billion in tariff refunds due to an adverse court ruling, expanding June deficit to $120 billion. With Brazil becoming a new tariff target, trade frictions could weaken the Brazilian real, enhancing Brazilian cotton export competitiveness and suppressing US cotton prices, indirectly affecting global pricing benchmarks.
Domestic cotton growth is stable. Xinjiang regions enjoy suitable light and heat with limited local high-temperature impacts; Hebei and Hunan show steady growth, but entering the伏期, boll numbers on middle and top branches may be limited, requiring attention to later-stage yield impacts. Overall, domestic supply faces no short-term issues.
Price Outlook
The reserve release's first-week floor price significantly below spot levels is expected to suppress domestic and international cotton prices in the short term, with prices likely to maintain range-bound volatility. Key variables to watch include:
- Weather in US main producing areas over the next 2-3 weeks; sustained heat could push international prices higher
- Brazilian cotton export pace and real exchange rate trends; a weaker real further enhances its price advantage
- Domestic mill restocking意愿; reserve sale成交 rates and premiums reflect true demand强度
- Global inflation and tariff policy evolution, impacting end-consumer apparel demand and trade flows