When the reserve cotton release announcement coincided with US cotton export data hitting a new seasonal low in the same week, the downward channel for domestic and international cotton prices opened rapidly. This week, the average price of Zhengzhou Commodity Exchange's main contract was 16,057 yuan/ton, down 0.9% week-on-week, while the National Cotton Price B Index also fell 0.5%, indicating a systematic correction in the market's previous pricing logic of tight supply.
Event Background
On July 15, China National Cotton Reserves Corporation issued a notice for central reserve cotton sales, starting July 20 through the National Cotton Trading Market via open competitive bidding, limited to textile mills. The first-week floor price of 16,291 yuan/ton is significantly lower than the current spot market price of 17,659 yuan/ton, providing mills with direct cost relief. The policy intent is clear: targeted supply assurance and speculation suppression, not overall price suppression.
Meanwhile, international cotton prices face compounding pressures. The USDA July report reduced the 2026/27 global production-demand gap by 223,000 tons from June, with global ending stocks still high at 15.51 million tons. US cotton export sales remain weak through July 9, while Brazilian cotton exports surged 81.5% in daily average during the second week of July, driven by record production, price advantages, and improved logistics. Brazil has solidified its position as the world's largest cotton exporter, creating sustained competitive pressure on US cotton.
Industry Impact
The direct effect of reserve cotton release is to increase domestic supply and ease mill procurement pressure. Current mill operating rates stand at 79.7%, up 1.1 percentage points year-on-year, with 46.3% of mills planning to purchase cotton, up 9.9 percentage points. On the demand side, domestic consumption data provide positive support: first-half 2026 retail sales of consumer goods grew 1.3% year-on-year, while apparel, footwear, and textile retail sales above designated size grew 6.7%, significantly outperforming overall consumption, showing sustained resilience in apparel demand.
However, external demand uncertainties persist. US tariff policies continue to evolve. After the Supreme Court ruled some tariffs illegal, leading to $49.2 billion in tariff refunds in June, the US plans to impose 25% tariffs on thousands of Brazilian goods starting July 22, including apparel. If trade friction weakens the Brazilian real, it will further enhance Brazilian cotton export competitiveness, pressuring US cotton prices and indirectly affecting global cotton price benchmarks. Additionally, Middle East tensions have pushed Brent crude above $88/barrel, and with over 40% of companies planning to pass tariff costs through price increases, global inflation expectations are rising, posing long-term concerns for textile chain end-consumption.
Weather remains the key short-term variable. About 46% of US cotton-growing areas face drought as of July 14, with the next 2-3 weeks critical for yield formation. Indian central cotton regions have uneven monsoon rainfall. While Xinjiang's high temperatures have limited impact, Hunan and Hebei need to monitor heat effects on boll counts.