The first week of China's central reserve cotton auctions delivered a standout performance: all 40,100 tons offered were sold, with bidding premiums remaining elevated. This outcome directly challenged the market's initial assumption that reserve releases would suppress prices. Instead, cotton prices found support from robust demand, defying the supply increase.
Background
The auctions, launched on July 20, recorded a 100% daily transaction rate throughout the first week, with an average selling price of RMB 17,404/ton. This indicates that textile mills are genuinely concerned about supply gaps before the new crop arrives and are willing to pay above-floor prices to secure inventory. Meanwhile, Zhengzhou Cotton Futures main contract settled at an average of RMB 15,980/ton, edging down only 0.5% week-on-week, reflecting a narrow trading range.
International markets moved independently. ICE Cotton Futures main contract averaged 80.59 cents/lb, up 0.3% from the prior week, reclaiming the 80-cent mark. Three factors drove this: a broad rally in agricultural commodities, a 49% surge in weekly US cotton export sales to 11,600 tons, and heightened risk premiums from escalating Middle East tensions. Brazilian cotton exports also strengthened, with average daily shipments in the first three weeks of July surging 32% compared to the full-month daily average of July last year.
The domestic-foreign price spread widened further. The International Cotton Index (M), representing import parity, averaged 88.45 cents/lb, translating to an import cost of RMB 14,618/ton — nearly RMB 3,000/ton below domestic prices. The spread expanded by approximately 3.3% week-on-week. This structure favors imported cotton, though the reserve sales, which consist mainly of imported bales, have partially balanced import demand.
Industry Impact
Price transmission in the yarn segment showed divergence. Domestic C32S combed yarn averaged RMB 23,318/ton, essentially flat, while imported yarn from major origins averaged RMB 22,970/ton, up 0.3% week-on-week, narrowing the premium to only RMB 348/ton. Polyester staple fiber prices also rose by RMB 129/ton to RMB 7,584/ton, suggesting the substitution effect of man-made fibers for cotton is weakening.
Textile mill restocking behavior warrants attention. Surveys in Zhejiang's spinning hubs indicate that despite the current off-season, mill operating rates remain high, with export orders and profitability significantly outperforming domestic sales. As the traditional peak season of September-October approaches, restocking intentions are strengthening — the fundamental reason behind the high auction premiums.
Macro headwinds are building. On July 23, the USTR announced 10%-12.5% tariffs on 60 countries under Section 301, with China facing a 12.5% rate. The EU fined AliExpress EUR 550 million under the Digital Services Act, raising compliance costs for cross-border e-commerce small-packet shipments. In the Middle East, daily supertanker transits through the Strait of Hormuz have plunged to just two, cutting crude oil flows by about 12 million barrels and keeping shipping costs elevated.