Reserve Cotton Auction Starts with Premium, Domestic Cotton Consolidates While International Cotton Tops 80 Cents

The first week of China's central reserve cotton auction opened with a 100% transaction rate and notable premiums, injecting stability into the domestic cotton market ahead of the new crop arrival.

Event Background

On July 20, the central reserve cotton auction was officially launched. In the first week, 40,100 tons were offered, all sold at an average price of 17,404 yuan/ton, significantly above spot market levels. The premium reflects mills' recognition of reserve quality and their concern over near-term supply tightness. The auction, primarily featuring imported cotton, partially offset import demand, applying downward pressure on import parity—the International Cotton Index (M) average fell 0.87 cents/lb week-on-week, translating to a landed cost of 14,618 yuan/ton. Meanwhile, domestic Zhengzhou cotton futures averaged 15,980 yuan/ton, down just 0.5%, while the National Cotton Price B Index averaged 17,610 yuan/ton, down 0.3%, underscoring the stabilizing effect of reserve sales.

Industry Impact

Internationally, ICE cotton futures averaged 80.59 cents/lb, up 0.3% week-on-week, reclaiming the 80-cent threshold. Drivers included a broader rally in global agricultural commodities and improved U.S. export data—USDA reported a 49% jump in net export sales for the week ending July 16. Brazilian cotton exports also surged, with average daily volumes in the first three weeks of July up 32% from the full-month average of July last year. Consequently, the domestic-international price spread widened to approximately 2,992 yuan/ton, up 3.3% from the prior week. This supported imported yarn prices, with C32S combed yarn from major sources rising 0.3% week-on-week to 22,970 yuan/ton, narrowing the gap with domestic yarn to 348 yuan/ton. Polyester staple fiber also rose 129 yuan/ton to 7,584 yuan/ton. Though the textile market remains in a seasonal lull, mill operating rates in Zhejiang stayed high, with export orders and profitability significantly outperforming domestic sales. June textile and apparel exports hit $29.271 billion, a monthly high for 2025, with both sequential and year-on-year growth. Among 41 listed textile and apparel firms, 23 expect net profit growth in the first half, with 12 forecasting gains exceeding 100%.

Practical Recommendations

For Purchasers - With reserve auction premiums elevated but ongoing supply, buyers can moderate aggressive procurement ahead of the new crop. - The widened domestic-international spread reduces the cost advantage of imported cotton; prioritize domestic reserve auction opportunities. - Imported yarn prices, though up slightly, remain competitive versus domestic alternatives; consider increasing import yarn allocation.

For Exporters - The U.S. 12.5% tariff on Chinese goods and tighter EU e-commerce regulations raise compliance costs for small-package direct shipping; assess regulatory impact proactively. - Ongoing Middle East tensions have reduced oil tanker traffic through the Strait of Hormuz, pushing up freight costs; secure shipping slots early and diversify routes. - Strong demand for U.S. and Brazilian cotton supports international prices; export quotes can be adjusted upward, but monitor heatwave risks to Xinjiang cotton production.