The first week of China's central reserve cotton release delivered a stellar performance: all 40,100 tons offered were fully subscribed, with auction premiums remaining high and the average transaction price reaching 17,404 yuan per ton. This data not only validates the market's acceptance of policy-driven supply but also underscores textile mills' urgent demand for high-quality cotton before the new crop arrives.
Domestic-International Spread Widens
The domestic spot market remained stable, with the National Cotton Price B Index averaging 17,610 yuan per ton, down just 49 yuan from the previous week, a decline of only 0.3%. Zhengzhou cotton futures主力合约 averaged 15,980 yuan per ton, also trading in a narrow range. Internationally, the ICE cotton futures主力合约 average price rose to 80.59 cents per pound, up 0.3% from the prior week, once again holding above the 80-cent mark.
As a result, the domestic-international price spread has further widened. Based on a 1% tariff, the landed cost of imported cotton was approximately 14,618 yuan per ton, while domestic spot prices were nearly 2,992 yuan higher, expanding by 95 yuan from the previous week. This spread structure implies that under the reserve release strategy focusing on imported cotton, domestic textile mills have obtained relatively cheaper raw material supplements, partially hedging against the cost pressure from rising international cotton prices.
Dual Squeeze from Macro and Industry Factors
Behind the price divergence lies a turbulent macro environment. On July 23, the U.S. Trade Representative announced tariffs of 10%-12.5% on 60 countries and regions under Section 301 of the Trade Act of 1974, with a 12.5% rate on Chinese goods. This move directly impacts cost calculations for textile and apparel exporters. Simultaneously, the European Commission fined AliExpress €550 million under the Digital Services Act, raising compliance costs for cross-border e-commerce small parcel direct shipping models and potentially suppressing Chinese footwear and apparel small parcel exports.
Geopolitical risks further elevate supply chain costs. A JPMorgan report shows that the daily average transit of very large crude carriers through the Strait of Hormuz has plummeted from 8 to 2 vessels since late June, with crude oil transport volume dropping by approximately 12 million barrels, pushing international oil prices and shipping costs to elevated levels. For China's textile industry, which relies on imported cotton and exported garments, this represents a double squeeze.
Demand Side Shows Signs of Recovery
Despite the complex external environment, downstream textile demand has shown positive signals. Customs data reveals that China's textile and apparel exports in June reached $29.271 billion, up 14.3% month-on-month and 7.2% year-on-year, marking the highest monthly figure since January 2025. Among 41 A-share textile and apparel companies that have released interim performance forecasts, 23 expect net profit growth, with 12 forecasting increases exceeding 100%. Spinning mills in Zhejiang maintain high operating rates, with export orders and profitability significantly outperforming domestic sales.
On the international front, US and Brazilian cotton export prospects are improving. USDA data shows that for the week of July 10-16, net export sales of 2025/26 US upland cotton reached 11,600 tons, a 49% surge from the prior week. Brazil's average daily cotton exports in the first three weeks of July surged 32% compared to the same period last year, reflecting robust global cotton demand.
Weather and Seasonality as Key Variables
Cotton growth in major domestic producing regions is generally normal, but risks remain. Xinjiang boasts ample sunlight and heat, favoring boll formation, but persistent high temperatures and low rainfall in southern Xinjiang increase local irrigation pressure, raising concerns about boll shedding. Hubei may see a reduction in cotton acreage, while Hunan growth is good, and Hebei and Shandong are on par with last year.
As the traditional peak season of 'Golden September and Silver October' approaches, textile mills are increasingly inclined to replenish inventories. The reserve cotton release has effectively alleviated supply tightness expectations before the new crop arrives, but high auction premiums indicate that competition for quality resources remains intense. In the short term, domestic cotton prices are expected to continue trading in a narrow range, while international prices will likely maintain a stronger trend supported by macro and supply-demand factors.