The first week of China's central reserve cotton auctions delivered an impressive performance: all 40,100 tonnes offered were sold, with bidding premiums notably high and the average transaction price reaching 17,404 yuan/ton. This reflects strong restocking demand from textile mills even during the traditional off-season, and underscores lingering concerns about tight supply ahead of the new crop harvest.
Dual Dynamics Behind the Widening Price Gap
Domestic spot cotton prices held steady, with the National Cotton Price B Index averaging 17,610 yuan/ton, down only 49 yuan/ton from the prior week. Zhengzhou cotton futures averaged 15,980 yuan/ton, fluctuating less than 0.5%. International markets told a different story. ICE cotton futures averaged 80.59 cents/lb, up 0.3% week-on-week, reclaiming the 80-cent threshold.
This divergence widened the domestic-international price gap. Imported cotton, at a 1% tariff, averaged 88.45 cents/lb, or 14,618 yuan/ton CIF, expanding the spread by 95 yuan/ton to approximately 2,992 yuan/ton. Reserve sales, primarily of imported cotton, partially offset the need for direct imports, preventing domestic prices from tracking the international rally.
Supply Chain Signals: Yarn Spreads and Polyester Trends
Cotton yarn markets showed a 'stable domestic, rising import' pattern. Domestic C32S combed yarn averaged 23,318 yuan/ton, unchanged week-on-week, while comparable imported yarn rose 70 yuan/ton to 22,970 yuan/ton, narrowing the premium to 348 yuan/ton. Polyester staple fiber prices climbed 129 yuan/ton to 7,584 yuan/ton, increasing substitution pressure on pure cotton yarn.
Downstream, Zhejiang spinning mills maintained high operating rates, with export orders and profitability significantly outperforming domestic sales. This aligns with June's textile and apparel export data: $29.271 billion, up 14.3% month-on-month and 7.2% year-on-year, the highest monthly figure since January 2025.
Policy and Trade Headwinds: Tariffs and Regulatory Tightening
Macro uncertainties intensified. On July 23, the USTR announced 10%-12.5% tariffs on 60 countries under Section 301, with China facing a 12.5% rate. This will directly raise export costs for Chinese textiles to the US, pressuring second-half orders.
Meanwhile, the European Commission fined AliExpress €550 million under the Digital Services Act, signaling stricter oversight of cross-border e-commerce. Higher compliance costs for small-packet direct shipping may curb apparel exports via this channel, challenging small and medium-sized textile firms.
Shipping risks persist. Very large crude carrier transits through the Strait of Hormuz have dropped to just two per day, slashing crude oil flows by about 12 million barrels and keeping international oil prices and freight costs elevated.
Crop Conditions and Outlook
Domestic cotton growth is generally normal, but heat stress is a concern. Xinjiang's ample sunlight favors boll development, but persistent high temperatures and low rainfall in southern Xinjiang increase local irrigation pressure and the risk of boll shedding. In inland areas, Hebei and Shandong show year-on-year parity, Hunan's planting area is stable, while Hubei may see a reduction.
In summary, reserve sales have effectively supplemented market supply, capping near-term price upside. However, restocking demand ahead of the 'golden September and silver October' season, reflected in auction premiums, provides a floor. Cotton prices are expected to remain range-bound, with key focus on weather in major producing regions, the pace of US tariff implementation, and sustainability of US export sales.