The first week of China's central reserve cotton auctions delivered a 100% clearance rate, with premiums becoming the market norm. All 40,100 tons offered were snapped up by textile mills at an average price of 17,404 yuan per ton, signaling strong consensus on tight supply ahead of the new crop and a shift from waiting to active restocking.
Widening Domestic-International Spread Weakens Import Appeal
Domestic cotton prices remained narrowly range-bound, with the Zhengzhou Cotton Futures main contract averaging 15,980 yuan per ton, down 0.5% week-on-week. In contrast, ICE cotton futures averaged 80.59 cents per pound, up 0.3% and holding above the 80-cent mark. The spread between domestic and international prices widened by 95 yuan per ton, narrowing the cost advantage of imported cotton.
Notably, the reserve sales primarily consisted of imported cotton, directly offsetting some import demand. The International Cotton Index (M) actually fell 1.0% to 88.45 cents per pound, reflecting how reserve releases not only stabilize the domestic market but also soften price transmission from global markets.
Downstream: Export Orders Recover, Domestic Demand Still Sluggish
Cotton yarn prices showed divergence. Domestic C32S combed yarn averaged 23,318 yuan per ton, flat week-on-week, while imported yarn rose 0.3% to 22,970 yuan per ton, narrowing the gap to 348 yuan. Polyester staple fiber climbed 129 yuan to 7,584 yuan per ton on higher crude costs, increasing substitution pressure on cotton.
Surveys of mills in Zhejiang indicate high operating rates, with export orders and profitability significantly outperforming domestic sales. June textile and apparel exports reached $29.27 billion, up 14.3% month-on-month and 7.2% year-on-year, hitting the highest monthly level since January 2025. Among 41 listed textile companies, 23 forecast year-on-year net profit growth in their interim reports, with 12 expecting gains exceeding 100%. Exports remain the industry's main support.
Macro Risks Cap Upside for Cotton Prices
The U.S. imposed 12.5% tariffs on Chinese goods under Section 301, targeting 60 countries. The EU fined Alibaba's AliExpress €550 million under the Digital Services Act, tightening cross-border e-commerce regulation. Middle East tensions have cut Very Large Crude Carrier transits through the Strait of Hormuz from 8 to 2 per day, keeping oil and shipping costs elevated. These external pressures cloud the textile export outlook, especially for small parcel direct shipping models.
Weather and Seasonal Demand: Key Battleground
Xinjiang enjoys ample sunlight and heat, but persistent high temperatures and low rainfall in southern areas raise irrigation stress and boll shedding risks. Hebei and Shandong show normal growth, Hunan's acreage is stable, while Hubei may see a reduction. Overall domestic production expectations are stable, but high temperatures remain the wildcard.
As the traditional "Golden September and Silver October" peak season approaches, mills are increasingly inclined to restock. Reserve sales ease short-term supply anxiety, but premium bids suggest the market is not overly optimistic about future supply. Near-term cotton prices are expected to remain stable domestically while strengthening internationally. Focus should remain on growing-area weather and actual consumption recovery.