Cotton prices are experiencing a rally driven by external energy costs and domestic policy demand. On July 21, ICE December cotton futures settled at 80.42 cents per pound, up 1.9%, hitting a five-week high. This gain is underpinned by a sharp oil price surge and the full premium sellout of China's reserve cotton auction.
Background
Oil prices became the most direct catalyst. On July 21, U.S. crude oil rose over 2% to a five-week high. The Middle East situation deteriorated sharply—escalating attacks between the U.S. and Iran, and Houthi rebels declaring a naval blockade on Saudi Arabia, threatening Red Sea shipping routes. Higher oil prices raise the production cost of polyester, cotton's main substitute, thereby enhancing cotton's price competitiveness.
Simultaneously, China's reserve cotton sales launched on July 20. The first day saw 8,006 tons offered and all 8,006 tons sold at premiums. This result exceeded market expectations. The pricing mechanism, current supply-demand gap, and market confidence in policy support drove this rush. As the world's largest cotton consumer and importer, China's reserve cotton sales serve as a demand barometer. The first-day sellout signals strong replenishment demand from downstream textile mills and hints at rising import demand.
Industry Impact
India's monsoon rainfall remains below average, directly delaying cotton sowing. Industry data shows current sowing progress is about 23% behind last year. India is a major cotton exporter, and any downward revision in its production forecast will reshape the global cotton supply-demand balance. Combined with robust Chinese demand, the support base for international cotton prices is strengthening.
For domestic textile mills, the cost pressure from rising cotton prices is twofold. Polyester staple fiber prices are firming due to higher oil costs, limiting substitution options. Meanwhile, spot cotton prices follow futures higher—the Cotlook A index rose to 88 cents per pound, up 35 points in one day. This means production costs for both pure cotton and blended fabrics are rising. Fabric buyers need to reassess order pricing and raw material inventory cycles.
From an inventory perspective, ICE deliverable stocks stood at 97,800 bales, slightly down from the prior three days, indicating weak delivery willingness at the rally's onset. This contrasts with the reserve cotton sellout—policy auctions aim to stabilize prices, but the premium sellout reinforced bullish market expectations. In the near term, cotton prices are more likely to rise than fall.