The first week of China's central reserve cotton release achieved a 100% transaction rate with notable premiums, yet domestic cotton prices remained range-bound. The Zhengzhou cotton futures main contract averaged 15,980 yuan per ton, down 0.5% week-on-week. Meanwhile, ICE cotton futures held above 80 cents per pound, widening the domestic-international spread by 95 yuan per ton. This 'stable domestic, strong overseas' pattern reveals deep supply-demand dynamics.
Reserve Release Impact: Short-Term Supply Relief, Market Cards Revealed
Launched on July 20, the reserve sale saw 40,100 tons fully transacted at an average price of 17,404 yuan per ton, exceeding the China Cotton Price Index B of 17,610 yuan per ton. Mills paid a premium for quality and delivery reliability. The narrow domestic price movement indicates the release effectively filled the supply gap before the new crop, capping upside. The reserve release primarily consists of imported cotton, diverting some import demand. The International Cotton Index (M) averaged 88.45 cents per pound, with landed cost at 14,618 yuan per ton, down 1.0% week-on-week.
International Variables: US Export Recovery Meets Geopolitical Risks
International cotton strength stems from demand improvement. USDA data shows US upland cotton net export sales for the week ending July 16 surged 49% from the prior week. Brazil's July cotton exports averaged 7,321 tons per day, up 32% year-on-year. Global demand is not as weak as expected, with buyers entering at lower prices. However, Middle East tensions persist, with Strait of Hormuz crude oil transit halved, pushing up shipping costs. JPMorgan reports very large crude carrier daily transits dropped from eight to two vessels, straining supply chains. For Chinese textile exporters, extended shipping times and higher freight will compress margins.
Macro Trade Environment: Tariff Barriers and Regulatory Tightening
On July 23, the U.S. Trade Representative announced 10%-12.5% tariffs on 60 countries, with China facing 12.5%. This is a structural extension of Section 301. The EU fined AliExpress €550 million under the Digital Services Act, raising compliance costs for small parcel direct shipping. China's textile and apparel exports reached $29.27 billion in June, a 2025 high, but included significant cross-border e-commerce parcels. EU regulatory tightening may hit low-value, high-frequency footwear and apparel exports. Among 41 listed textile firms, 23 forecast net profit growth in interim reports, showing resilience among leaders, but SME pressure is mounting.
Mill Survey: Off-Season Resilience, Restocking Intent Strengthens
Zhejiang spinning mills maintain high operating rates, with export orders and profitability significantly outperforming domestic sales. This aligns with the high reserve release transaction rate—mills are preparing for the 'golden September and silver October' peak season. In Xinjiang, ample sunlight favors cotton boll formation, but persistent high temperatures in southern areas strain irrigation, risking boll shedding. Hunan sees stable planting area, while Hubei faces reductions.
In summary, the reserve release has smoothed price volatility short-term but hasn't shifted bottom support. As the peak season approaches, mill restocking will sustain demand, potentially widening the domestic-international spread.