China's domestic cotton market has entered a critical policy phase. On July 15, China National Cotton Reserves Corporation announced the public auction of a portion of state reserve cotton starting July 20, exclusively for textile mills. This targeted supply measure directly addressed earlier market concerns over tightening supply and quickly triggered price adjustments: Zhengzhou Cotton Futures main contract settled at 16,057 yuan/ton, down 0.9% week-on-week, while the National Cotton Price B Index fell 0.5% to 17,659 yuan/ton. The initial auction floor price of 16,291 yuan/ton is significantly below current spot levels, exerting clear short-term pressure on both domestic and international cotton prices.
Supply-Demand Dynamics: Domestic Support, External Uncertainty
On the domestic consumption front, data from the National Bureau of Statistics shows that in the first half of 2026, total retail sales of consumer goods grew 1.3% year-on-year, while sales of apparel, footwear, and textiles by enterprises above a designated size surged 6.7%, significantly outperforming the broader consumer market. June alone saw a 3.9% increase in this category, turning positive from the previous month. These figures indicate resilient consumer demand for textiles and apparel, providing a solid floor for the industry chain. However, the export side faces greater headwinds. The US tariff policy continues to escalate—the USTR plans to impose a 25% tariff on thousands of Brazilian goods starting July 22, including apparel and motors. While directly targeting Brazil, this move reflects the broader spread of global trade frictions. Meanwhile, a New York Fed survey shows over 40% of firms plan to pass tariff costs through price increases, and with Brent crude breaking above $88/barrel amid Middle East tensions, global inflation expectations are rising again, potentially dampening end-consumer demand.
International Cotton Market: Brazil Rises, US Pressured
The global cotton supply-demand balance is shifting. The USDA July WASDE report shows the 2026/27 global cotton production-consumption gap narrowing by 223,000 tons from June, with ending stocks still high at 15.51 million tons. Export divergence is stark: Brazil, leveraging record production, price advantages, and improved logistics, saw daily exports surge 81.5% year-on-year in the second week of July, cementing its position as the world's top cotton exporter. In contrast, US cotton export sales remain weak, with the latest weekly data hitting a seasonal low. Moreover, the key growing region of Texas is experiencing hot and dry conditions, with 46% of US cotton areas facing drought as of July 14. The next 2-3 weeks are critical for yield formation. Persistent drought could further lower yield expectations, providing support for forward prices; conversely, rainfall would quickly erode the weather premium. In India, monsoon rains have improved, boosting planting progress, but uneven distribution in central regions means July-August weather remains a key variable for new crop output.
Price Outlook and Operational Rhythm
Overall, the short-term supply injection from reserve cotton releases will keep domestic prices under pressure. The Zhengzhou cotton futures main contract is expected to trade in a 15,500-16,500 yuan/ton range. But downside is limited: domestic consumption data is positive, mill operating rates have risen 1.1 percentage points year-on-year to 79.7%, and 46.3% of mills plan to purchase cotton, up nearly 10 percentage points, indicating a recovery in restocking intentions. Medium-to-long-term price direction depends on two variables: weather conditions in Xinjiang, Hunan, and Hebei—currently favorable in Xinjiang but with high temperature risks; and the trajectory of US-China tariff policies and the sustainability of Brazilian cotton exports, which directly determine the pace of external demand recovery.