Domestic cotton prices saw a notable correction last week, driven by a concentrated revision of supply-side expectations. The official announcement of central reserve cotton sales on July 15 disrupted the market's previous pricing logic based on tight supply. Zhengzhou Cotton Futures' main contract settled at an average of 16,057 yuan/ton, down 0.9% week-on-week, while the China Cotton Price Index B, representing domestic spot prices, fell to 17,659 yuan/ton, a 0.5% decline.
The direct trigger for this price decline was the psychological intervention of the reserve cotton release mechanism. The first-week floor price of 16,291 yuan/ton is significantly below current domestic spot quotes, meaning textile mills can secure raw materials at below-market prices through competitive bidding, compressing spot premiums in the short term. The policy's intent is clear: by limiting participation to textile mills, it aims to curb speculative hoarding and alleviate temporary supply-demand mismatches.
International Cotton Prices Weak, Brazilian Exports Squeeze US Market Share
International markets also lack upward momentum. US cotton export data hit a seasonal low, while the drought-affected area in major growing regions shrank. New York Cotton Futures' main contract averaged 80.37 cents/lb, down 0.1% week-on-week. More notably, the domestic-international price gap narrowed by 310 yuan/ton to 9.7%, indicating that imported cotton's cost advantage is fading.
Brazil's strong cotton performance is reshaping global trade dynamics. According to SECEX data, Brazil exported about 80,300 tons of cotton in the second week of July, with daily exports surging 81.5% year-on-year. Record production, price competitiveness, and improved logistics have cemented Brazil's position as the world's top cotton exporter, putting sustained pressure on US cotton. The USDA's July report narrowed the 2026/27 global cotton production-consumption gap by 223,000 tons month-on-month, with ending stocks remaining high at 15.51 million tons, further weakening the fundamental support for price increases.
Macro-Level Inflation Concerns Rise, Tariff Policies Disrupt External Demand
Cotton prices face not only short-term supply-demand dynamics but also systemic macro pressures. US tariff policies continue to unfold: after the Supreme Court ruled some tariffs illegal, the Treasury paid about $49.2 billion in tariff refunds in June, but the US is now planning to impose 25% tariffs on thousands of Brazilian goods starting July 22, including apparel, motors, and paper. This could weaken the Brazilian real, boosting Brazil's cotton export competitiveness and further pressuring US cotton prices.
Global inflation concerns are also intensifying. A New York Fed survey shows over 40% of firms plan to pass tariff costs through price increases. Geopolitical tensions in the Middle East have pushed Brent crude above $88/barrel. The dual forces of energy and tariffs are jointly driving global inflation expectations. For the textile industry, this means downstream consumer purchasing power may erode, and the recovery pace of export orders remains uncertain.
Domestic Consumption Shows Resilience, Mills' Restocking Intentions Rise
The domestic market is not without support. National Bureau of Statistics data shows retail sales of consumer goods in the first half of 2026 grew 1.3% year-on-year, with sales of apparel, footwear, and textiles by units above designated size up 6.7%, significantly outpacing overall consumption growth. Consumer resilience in apparel provides a bottom-line support for the textile chain.
Mill operating rates and purchasing intentions reflect this trend. In early July, the average mill operating rate was 79.7%, up 1.1 percentage points year-on-year; 46.3% of mills planned to purchase cotton, up 9.9 percentage points. The launch of reserve cotton sales meets this restocking demand and is expected to alleviate raw material procurement pressure in the short term.
Weather Variables Remain Key, US Cotton Growth Window Risk Not Over
Despite improved short-term supply expectations, weather factors could still break the balance. US cotton is in the squaring, flowering, and early boll-setting stages. As of July 12, the national cotton good-to-excellent rate was 44%, down 2 percentage points week-on-week; about 46% of US cotton areas face some drought. The next 2-3 weeks are critical for yield formation. If high temperatures and low rainfall persist in Texas and other key regions, yield expectations could be revised down, providing a new weather premium for prices.
Domestically, Xinjiang's cotton areas have suitable light and heat conditions, but localized high temperatures need monitoring; Hebei and Hunan areas show stable growth, but boll counts may be limited in the mid-to-top canopy during the dog days. Overall, 2026/27 global cotton production remains uncertain, and the actual supply-demand gap will depend on July-August weather.