Domestic cotton prices, which had been buoyed by earlier supply tightness expectations, have now clearly turned lower. The official announcement of China's central reserve cotton sales, combined with US cotton export data hitting a seasonal low, has put both domestic and international markets under pressure. The average settlement price of Zhengzhou Cotton Futures main contract fell 148 yuan/ton week-on-week to 16,057 yuan/ton, a decline of 0.9%. The China National Cotton Price B Index also dropped 80 yuan/ton to 17,659 yuan/ton. Internationally, the average settlement price of the New York Cotton Futures main contract edged down 0.1% to 80.37 cents/lb, but the International Cotton Index (M), converted to yuan import cost, actually rose 229 yuan/ton to 14,762 yuan/ton due to exchange rate and logistics factors. This narrowed the domestic-international price gap by 310 yuan/ton, a 9.7% drop.
This narrowing price gap means the cost advantage of imported cotton is weakening, making domestic or reserve cotton more attractive for textile mills in the short term.
Reserve Cotton Release: Targeted Supply and Price Anchor
On July 15, China National Cotton Reserves Corporation officially announced the sale of central reserve cotton, starting July 20 through competitive bidding on the National Cotton Trading Market. The sale is limited to textile mills, aiming to ensure precise supply and curb speculation. The first week's floor price is set at 16,291 yuan/ton, significantly below the current spot market price of 17,659 yuan/ton, a spread of over 1,300 yuan/ton.
This floor price directly signals the policy intent to guide prices lower by increasing effective supply during a period of temporary tightness, while providing mills with a low-cost raw material channel. Data shows that in early July, 46.3% of mills planned to purchase cotton, up 9.9 percentage points year-on-year, indicating strong downstream restocking demand. The reserve release will effectively ease mills' procurement pressure, especially for small and medium-sized cotton spinners who can now access low-cost resources through bidding.
Global Supply-Demand: Deficit Narrows, Competition Intensifies
The USDA July supply-demand report shows the global cotton production-consumption deficit for 2026/27 has narrowed by 223,000 tons from the June forecast, with global ending stocks still high at 15.51 million tons. This easing of supply tightness continues to pressure international prices. Meanwhile, Brazilian cotton exports remain robust, with average daily exports in the second week of July surging 81.5% year-on-year, cementing Brazil's position as the world's largest cotton exporter. Brazilian cotton, with record production, price advantages, and improved logistics, is directly competing with US cotton.
US cotton fundamentals are also weak. As of July 9, US cotton export sales and shipments were poor, hitting a seasonal low. Weather-wise, while earlier drought has eased, 46% of US cotton planting areas still face some level of drought as of July 14, with persistent high temperatures in the key Texas region. The next 2-3 weeks are critical for yield formation, keeping weather premiums alive. In India, monsoon rains have improved planting progress, but uneven rainfall in central regions keeps the July-August weather a key variable.
Downstream Transmission: Resilient Consumption but External Risks Linger
Domestic macro consumption data provides a floor for the textile chain. 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 retail sales of garments, footwear, hats, and textiles by units above a designated size up 6.7%, and June alone growing 3.9%, significantly outperforming overall retail. Consumer resilience in apparel is supporting the cotton textile chain.
However, external demand faces headwinds. US tariff policies continue to evolve. The US Treasury paid about $49.2 billion in tariff refunds in June due to a court ruling, but the US is still advancing new tariff frameworks, planning to impose 25% tariffs on Brazilian goods from July 22, covering apparel, motors, and other categories. This expansion of trade friction could further disrupt global textile trade flows. A New York Fed survey shows over 40% of firms plan to pass on tariff costs through price increases. Combined with Middle East tensions pushing Brent crude above $88/barrel, energy and tariff factors are jointly raising global inflation expectations, which could dampen final consumer demand.