The global cotton market is experiencing a price correction driven by shifting supply expectations. This week, domestic and international cotton prices weakened in tandem, with three main catalysts: China's reserve cotton release, US export sales hitting a seasonal low, and easing drought in key US growing regions. However, positive signals from domestic consumption data suggest limited downside for cotton prices.
Reserve Cotton Release: A Price Anchor Under Targeted Supply
On July 15, China National Cotton Reserves Corporation officially announced the sale of central reserve cotton starting July 20 through the National Cotton Trading Market, open only to textile mills. The first week's base price is set at 16,291 yuan/ton, significantly below the current domestic standard-grade cotton price of 17,659 yuan/ton, a spread of over 1,300 yuan.
This operation directly altered the market's previous tight supply expectations. Zhengzhou cotton futures averaged 16,057 yuan/ton for the week, down 148 yuan/ton or 0.9%. The China Cotton Price Index B averaged 17,659 yuan/ton, down 80 yuan/ton or 0.5%. For textile mills, the low-priced reserve supply means near-term cost relief, but they must watch for hidden costs from bidding premiums.
International Market: US Cotton Under Pressure, Brazil Rises
The US cotton market faced multiple headwinds this week. Export sales for the week ending July 9 hit a seasonal low, and shipment performance remained weak. Meanwhile, the US Drought Monitor showed that while 46% of US cotton areas still face drought, the affected area has decreased, cooling weather premium expectations. NY cotton futures averaged 80.37 cents/lb, down only 0.1%, but the Cotlook A Index rose 1.6% to 89.32 cents/lb, narrowing the domestic-international price spread to 310 yuan/ton.
Brazil's cotton export momentum deserves attention. According to SECEX data, Brazil exported about 80,300 tons of cotton in the second week of July, with daily exports of about 10,000 tons, up 81.5% year-on-year. With record production, price advantages, and improved logistics, Brazil has firmly become the world's largest cotton exporter, persistently pressuring US cotton. The USDA July supply-demand report confirmed this trend: the 2026/27 global cotton production-consumption gap narrowed by 223,000 tons from June, with ending stocks of 15.51 million tons still high, further easing supply tightness.
Domestic Consumption: Apparel Retail Turns Positive, Resilience Emerges
In contrast to supply-side pressure, positive news came from the consumption side. National Bureau of Statistics data on July 15 showed that total retail sales of consumer goods in the first half of 2026 grew 1.3% year-on-year, with June up 1.0%, turning positive from the previous month. Retail sales of garments, footwear, and knitwear by units above designated size grew 6.7% in H1, with June up 3.9%, significantly outperforming overall retail growth.
This suggests that the order base for downstream textile mills has not deteriorated. In early July, mill operating rates averaged 79.7%, up 1.1 percentage points year-on-year; 46.3% of mills planned to purchase cotton, up 9.9 percentage points. The combination of consumption resilience and reserve cotton supply creates a buffer, likely keeping cotton prices in a range rather than in a one-way decline.
Industry Impact: Near-Term Pressure, but Floor Support
Overall, the reserve cotton release will continue to suppress domestic prices in the coming weeks, especially in the spot market. However, given rising mill purchasing intentions, improved end-consumption, and international pressure from Brazilian exports, downside room for cotton prices may be limited. For textile mills, this is a window to lock in low-cost raw materials, but they must watch for bidding premiums and subsequent weather disruptions.