In the first week of China's central reserve cotton auctions, all 40,100 tonnes offered were sold at a premium, with an average price of 17,404 yuan/tonne. Yet domestic cotton prices remained range-bound, while ICE cotton futures climbed back above 80 cents/lb, widening the domestic-international price gap by 95 yuan/tonne in just one week. This divergence reflects the tension between policy-driven supply and export-led demand.
Reserve auctions: supply boost and price anchor
The auctions, launched on July 20, saw 100% turnover and clear premiums, indicating mills' strong acceptance of state reserve quality. The release, mainly composed of imported cotton, directly supplements high-grade supply and partly substitutes for imports. Domestic Zhengzhou cotton futures averaged 15,980 yuan/tonne, down 0.5% week-on-week, while the China Cotton Price Index B stood at 17,610 yuan/tonne, down 0.3%. The auctions cap domestic price upside but do not trigger a sell-off, as the market balances policy supply against pre-peak season restocking demand.
International strength: multiple drivers
ICE cotton's main contract averaged 80.59 cents/lb, up 0.3% week-on-week, supported by rising agricultural commodity prices, a 49% jump in US cotton export sales to 11,600 tonnes, and heightened Middle East tensions that cut oil tanker transits through the Strait of Hormuz from 8 to 2 per day, slashing crude shipments by 12 million barrels and raising shipping costs. Interestingly, the Cotlook A Index averaged 88.45 cents/lb, down 1.0%, as reserve cotton substitution and shipping risk premiums kept spot prices from following futures higher. The domestic-international price gap widened to about 2,992 yuan/tonne.
Downstream demand: exports lead, domestic lags
Domestic C32S combed cotton yarn prices held at 23,318 yuan/tonne, while imported C32S yarn rose 0.3% to 22,970 yuan/tonne, still 348 yuan/tonne cheaper. Polyester staple fiber rose 129 yuan/tonne to 7,584 yuan/tonne. Crucially, China's textile and apparel exports hit $29.271 billion in June, up 14.3% month-on-month and 7.2% year-on-year, the highest monthly total since January 2025. Among 41 listed textile firms with mid-year earnings forecasts, 23 expect net profit growth, with 12 projecting gains over 100%. Mill surveys in Zhejiang show high capacity utilization, with export orders and margins significantly outperforming domestic sales.
Macro headwinds: tariffs and regulatory tightening
In the same week, the USTR announced 12.5% tariffs on China under Section 301, targeting 60 countries. The EU fined AliExpress €550 million under the Digital Services Act, likely tightening small-package cross-border e-commerce, a channel for footwear and apparel exports. Combined with Middle East shipping risks, these factors will raise compliance and logistics costs for exporters.
Crop conditions and seasonal outlook
Cotton crops in major producing regions are generally normal, but heat stress is a concern. Xinjiang has adequate light and heat for boll formation, but persistent high temperatures in southern Xinjiang increase irrigation pressure, raising the risk of shed bolls. Hebei and Shandong crops are on par with last year; Hunan has stable acreage; Hubei may see reduced planting. As the traditional peak season approaches, some mills are boosting restocking, and the reserve auctions timely alleviate supply concerns ahead of the new crop.