The first week of central reserve cotton auctions sent a subtle but telling signal through China's cotton market. From July 20 to 24, 2026, a total of 40,100 tonnes of reserve cotton were offered, all sold with an average price of 17,404 yuan per tonne and notably high bidding premiums. Despite the traditional off-season for textile consumption, spinning mills' aggressive bidding revealed underlying concerns over future supply and a strong desire to replenish inventories.
Price Divergence: Domestic Stability vs. International Strength
While domestic cotton prices traded in a narrow range, international markets showed sharper momentum. The ICE cotton futures主力 contract averaged 80.59 cents per pound for the week, up 0.3% from the previous week. This rally was supported by multiple factors: USDA data showed net export sales of US upland cotton for the 2025/26 season surged 49% week-over-week for the period July 10-16; Brazilian cotton exports also accelerated, with daily averages in the first three weeks of July jumping 32% compared to the full-month average of July last year. Renewed tensions in the Middle East, which reduced very large crude carrier traffic through the Strait of Hormuz from eight to two vessels per day, pushed up international shipping costs and commodity prices, providing additional support to cotton.
As a result, the price gap between domestic and international cotton widened significantly. At a 1% tariff rate, the landed cost of imported cotton was approximately 14,618 yuan per tonne, while the China Cotton Index (B Index) stood at 17,610 yuan per tonne, creating a spread of 2,992 yuan per tonne—up 3.3% from the previous week. This means that for domestic textile mills, the cost advantage of imported raw materials has narrowed, making them rely more on domestic现货 and reserve auctions.
Macro & Industry: Trade Barriers Rise, End Demand Under Pressure
The cotton market is not isolated. On July 23, the US Trade Representative announced tariffs of 10%-12.5% on 60 countries under Section 301 of the Trade Act of 1974, with China facing the highest rate of 12.5%. Meanwhile, the European Commission fined AliExpress €550 million under the Digital Services Act, raising compliance costs for cross-border e-commerce small-package shipments. These policies increase uncertainty for China's textile and apparel export channels.
However, short-term data is not pessimistic. Customs data show that in June, China's textile and apparel exports reached $29.271 billion, up 14.3% month-over-month and 7.2% year-over-year, the highest monthly figure since January 2025. Among 41 A-share textile and apparel companies, more than half reported year-over-year net profit growth in their mid-year performance forecasts, with 12 companies seeing increases exceeding 100%. Behind these numbers is the reality that mills are maintaining high operating rates through export orders—mills in Zhejiang reported strong utilization, with export profitability significantly outperforming domestic sales.
Production Regions & Inventories: Heatwave Threat Looms, Auction Pace Critical
The growth conditions in China's major cotton-producing regions will be key to determining the next phase of supply-demand balance. Xinjiang's ample sunshine and accumulated temperatures favor boll formation and weight gain, but persistent high temperatures and low rainfall in southern Xinjiang are increasing local irrigation pressure, raising the risk of boll shedding. Surveys in Hebei and Shandong show growth on par with last year, Hunan's planted area is stable, but Hubei may face a reduction. Overall, no major deviation in new crop production expectations has emerged, but the persistence of heatwaves warrants close monitoring.
The pace of reserve cotton auctions directly influences mill procurement psychology. The first week's offering of 40,100 tonnes was fully subscribed at an average price of 17,404 yuan per tonne, about 206 yuan lower than the B Index, indicating strong price acceptance. Since the auctions primarily offer imported cotton, they supplement spot supply and offset some import demand, effectively capping domestic price upside. However, as the traditional peak season of 'Golden September and Silver October' approaches, mills' restocking intentions are strengthening. Whether the auctions can sustain their volume will be a critical lever for market expectations.