China's cotton market is undergoing a price correction driven by policy signals and a global supply-demand recalibration. The official announcement of reserve cotton sales has directly reversed the previous market pricing logic of tight supply, while external factors—such as US cotton export data hitting a seasonal low and shrinking drought areas in major producing regions—have further intensified the volatility of international cotton prices. This is not a simple short-term pullback but a starting point for the entire industry chain to recalibrate inventory, procurement, and export strategies.
Policy and Data Drive Price Decline
Domestic cotton prices showed a clear decline this week. The average settlement price of the Zhengzhou Cotton Futures main contract fell from 16,205 yuan/ton to 16,057 yuan/ton, a drop of 0.9%. The National Cotton Price B Index, representing the average price of standard-grade lint in the domestic market, also fell by 80 yuan/ton to 17,659 yuan/ton. The direct driver was the announcement on July 15 of central reserve cotton sales, which will be conducted via open auction through the National Cotton Trading Market starting July 20, limited to textile mills. The first-week reserve price of 16,291 yuan/ton is significantly below current spot prices, providing a clear cost ceiling for mills and effectively curbing speculative sentiment.
Internationally, the average settlement price of the ICE cotton main contract edged down to 80.37 cents/lb, but the International Cotton Index (M), representing the CIF price at China's main ports, rose 1.6% to 89.32 cents/lb, equivalent to an import cost of about 14,762 yuan/ton. The domestic-international price spread thus narrowed by 310 yuan/ton, a 9.7% decrease, further weakening the price advantage of imported cotton. This divergent trend reflects multiple bearish factors: US cotton export sales hitting a seasonal low, drought-affected areas in major producing regions shrinking to 46%, and strong Brazilian cotton exports.
Global Trade Frictions and Weather Variables Intertwine
The ripple effects of US tariff policies are reshaping global cotton trade patterns. After the Supreme Court ruled some tariffs illegal, the US Treasury paid approximately $49.2 billion in tariff refunds in June, expanding the monthly deficit to $120 billion. However, the US has not slowed its tariff escalation—the USTR plans to impose 25% tariffs on thousands of Brazilian goods starting July 22, covering apparel, motors, and paper products. This move could weaken the Brazilian real, enhancing the price competitiveness of Brazilian cotton in global markets and putting sustained pressure on US cotton exports. Meanwhile, a New York Fed survey shows over 40% of firms plan to pass on tariff costs through price hikes, and Middle East tensions have pushed Brent crude above $88/barrel, with energy and tariff factors jointly fueling global inflation expectations.
Weather factors are also critical. As of July 12, the US cotton condition rating fell 2 percentage points to 44% good-to-excellent. Persistent high temperatures in Texas and other key regions make the next 2-3 weeks a crucial window for yield formation. If hot and dry weather continues, yield expectations may be further downgraded; conversely, increased rainfall could alleviate drought and limit weather premiums. In India, improved monsoon rains have boosted sowing progress, but uneven rainfall in some central cotton areas means July-August weather remains a key variable for new-crop output. Brazil, with record production, price advantages, and improved logistics, exported about 10,000 tons of cotton per day in the second week of July, up 81.5% year-on-year, solidifying its position as the world's largest cotton exporter and maintaining competitive pressure on US cotton.
Domestic Consumption Resilience Supports, but Mills Cautious on Procurement
Despite the complex external environment, domestic macro data has sent positive signals. Data released by the National Bureau of Statistics on July 15 shows that total retail sales of consumer goods in the first half of 2026 reached 24.8722 trillion yuan, up 1.3% year-on-year, with June growth of 1.0%, turning positive from the previous month. Retail sales of apparel, footwear, and knitwear by units above the designated size grew 6.7% year-on-year, with June growth at 3.9%, significantly outpacing overall retail growth, indicating resilient consumer spending on clothing. This provides fundamental support for downstream demand in the textile chain.
However, mills are becoming more cautious about raw material procurement. In early July, the average operating rate of mills was 79.7%, up 1.1 percentage points year-on-year, but only 46.3% of mills planned to purchase cotton, up 9.9 percentage points year-on-year. The reserve cotton sales not only increase market supply but also provide a lower price reference, leading many enterprises to wait for clearer buying opportunities. Domestic cotton growth is generally stable, with favorable light and heat conditions in most of Xinjiang, but attention is needed for potential high temperatures in the coming week. In Hunan and Hebei, cotton has entered the peak boll-setting period, and the number of bolls on middle and upper branches may be limited, requiring monitoring of potential impacts on later-stage yields.