Just as the market was digesting the bearish news of US cotton exports hitting a seasonal low, China's announcement of reserve cotton sales poured cold water on previously tight supply expectations. Over the past week, the settlement price of Zhengzhou Cotton Futures' main contract fell to 16,057 yuan/ton, down nearly 1% week-on-week. The China National Cotton Price B Index also declined by 0.5%. The domestic-international cotton price spread narrowed by about 310 yuan/ton, a drop of nearly 10%. This correction is not an isolated event but the result of multiple bearish factors converging.
Reserve Cotton Sales: Targeted Supply or Short-Term Pressure?
On July 15, China National Cotton Reserves Corporation officially announced that starting July 20, some central reserve cotton would be sold through open竞价 at the National Cotton Trading Market, exclusively for textile enterprises. The starting price for the first week is set at 16,291 yuan/ton, significantly below the current domestic spot market average of 17,659 yuan/ton. This pricing strategy resembles a targeted supply intervention—easing raw material procurement pressure for mills while curbing speculative hoarding through low prices.
From the mills' perspective, this signal comes at the right time. Early July saw average operating rates at 79.7%, up 1.1 percentage points year-on-year, with 46.3% of enterprises planning to purchase cotton, a nearly 10 percentage point increase year-on-year. This indicates rising restocking intentions, and the low-priced reserve cotton fills the temporary supply gap. However, if sales volumes continue to increase, short-term supply pressure could further depress spot prices, posing inventory devaluation risks for traders who bought at higher prices.
Global Cotton Market: Inflation, Tariffs, and Weather in a Triple Squeeze
The international market faces more complex variables. In June, the US paid approximately $49.2 billion in tariff refunds due to an illegal tariff ruling, expanding the monthly fiscal deficit to $120 billion. Yet this has not stopped Washington from advancing new tariff frameworks. Starting July 22, the US will impose 25% tariffs on thousands of Brazilian goods, including apparel. The direct consequence is that the Brazilian real may weaken, enhancing the export competitiveness of Brazilian cotton.
Brazilian cotton exports are already surging. According to SECEX data, average daily exports in the second week of July surged 81.5% year-on-year. With record production and improved logistics, Brazil has firmly established itself as the world's largest cotton exporter, continuously pressuring US cotton. US cotton itself is in a tough spot: export sales and shipments through July 9 remained weak; although the good-to-excellent rating fell only 2 percentage points month-on-month, 46% of growing areas face drought, with persistent high temperatures in Texas. The next 2-3 weeks are critical for yield formation.
Meanwhile, global inflation expectations are rising. The New York Fed survey shows over 40% of companies plan to pass tariff costs through price increases, and Brent crude has breached $88/barrel. The dual pressure of energy and tariffs is transmitting from the cost side to the textile supply chain.
Domestic Consumption Resilience: A Ballast for Textile Demand
Despite uncertainties in external demand due to tariffs and trade frictions, domestic consumption data offers relatively optimistic signals. According to the National Bureau of Statistics, total retail sales of consumer goods in the first half of 2026 grew 1.3% year-on-year, with June turning positive month-on-month. Retail sales of apparel, footwear, hats, and textiles by units above designated size grew 6.7% in the first half, with June alone up 3.9%, significantly outperforming overall retail growth.
This indicates that consumer apparel spending resilience remains intact, providing fundamental support for downstream textile demand. Combined with continued macro policy support, domestic cotton consumption is likely to remain stable. However, the pace of export order recovery still needs monitoring, especially whether the US tariffs on Brazil trigger further trade friction spillovers that could affect indirect export channels for Chinese textiles.
Short-Term Oscillation, Mid-Term Depends on Weather and Policy
Overall, reserve cotton sales will suppress cotton prices in the short term, with domestic and international prices likely to oscillate within a range. But the mid-term trend depends on three variables: first, whether drought in major US cotton-growing regions eases—rainfall before end-July will directly determine yield expectations; second, the pace of Brazilian cotton exports and real exchange rate trends, which will influence the pricing center of international cotton; third, the total volume and pace of China's reserve sales—if only a temporary adjustment tool, the impact on long-term supply-demand balance is limited.