The announcement of China's state reserve cotton release, combined with a loosening global supply-demand balance, pushed domestic and international cotton prices lower this week. Zhengzhou cotton futures averaged 16,057 yuan/ton, down 148 yuan/ton week-on-week, a decline of 0.9%. The China National Cotton Price Index (B) averaged 17,659 yuan/ton, down 80 yuan/ton. Internationally, New York cotton futures averaged 80.37 cents/lb, a slight 0.1% drop, while the International Cotton Index (M) averaged 89.32 cents/lb. The domestic-international price spread narrowed to 310 yuan/ton, a 9.7% contraction from the prior week.
Reserve Release Eases Short-Term Supply Pressure
On July 15, China National Cotton Reserves Corporation announced a public auction of state reserve cotton starting July 20, exclusively for textile mills. The first week's floor price of 16,291 yuan/ton is significantly below current spot prices, directly improving earlier market expectations of tight supply. 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 percentage points. The release will effectively ease periodic supply tightness and curb speculation, exerting downward pressure on prices in the near term.
Global Deficit Narrows, Brazil Cotton Continues to Squeeze US Share
The USDA July report shows the 2026/27 global production-consumption deficit narrowing by 223,000 tons from June, with ending stocks of 15.51 million tons remaining relatively high. US cotton export sales hit a season low, while Brazilian cotton exports surged, with daily exports averaging 10,000 tons in the second week of July, up 81.5% year-on-year. Brazil, now the world's largest cotton exporter, continues to pressure US cotton prices. Meanwhile, drought conditions in US cotton-growing areas have eased to 46%, but persistent high temperatures in Texas make the next 2-3 weeks critical for yield formation. In India, monsoon rains have boosted planting, but uneven distribution in central regions keeps weather a key variable.
Trade Friction and Inflation Expectations Cloud External Demand
Despite a US Supreme Court ruling that partially invalidated tariffs, leading to $49.2 billion in refunds, the US is proceeding with new tariff frameworks. The USTR plans to impose 25% tariffs on thousands of Brazilian goods from July 22, including apparel and electronics. This could weaken the Brazilian real, enhancing Brazil's cotton export competitiveness and further pressuring US cotton. Additionally, over 40% of firms surveyed by the New York Fed plan to pass tariff costs through price increases, while Brent crude oil has broken above $88/barrel due to Middle East tensions. Energy and tariff factors are jointly fueling global inflation expectations, potentially dampening textile end-consumption.
Domestic Consumption Resilience Provides Floor
China's National Bureau of Statistics reported that total retail sales of consumer goods in the first half of 2026 grew 1.3% year-on-year, with June sales up 1.0% from a negative reading the previous month. Retail sales of apparel, footwear, and textiles by enterprises above the designated size grew 6.7% year-on-year, with June alone up 3.9%, significantly outpacing overall retail growth. This resilience in consumer spending supports textile chain demand and provides a floor for cotton consumption. However, external demand remains constrained by trade policies and the global economic outlook, requiring continued monitoring of export order recovery.
Short-Term Range-Bound Trading, Focus on Weather and Policy Implementation
In summary, the reserve cotton release increases domestic supply, with the first week's floor price well below spot, exerting short-term downward pressure on prices. The narrowing global deficit, strong Brazilian exports, and weak US sales keep international prices under pressure. However, improving domestic consumption data and higher mill operating rates limit downside. Cotton prices are expected to oscillate within a range in the near term. Key factors to watch include weather conditions in US growing regions over the next 2-3 weeks, Brazilian export pace, reserve auction outcomes, and US-China trade policy developments.