The central reserve cotton auction launched on July 20 closed its first week with 40,100 tons transacted, a 100% transaction rate, and significant premiums. This release rhythm is directly reshaping spot market supply-demand expectations, gradually alleviating earlier concerns about tight supply before the new crop arrives.
Price Divergence: Domestic-International Spread Nears 3,000 RMB/ton
Domestic cotton prices displayed a 'stable inside, strong outside' pattern. The Zhengzhou cotton futures main contract averaged 15,980 RMB/ton, down just 77 RMB/ton from the prior week. The National Cotton Price B Index, representing standard-grade lint, stood at 17,610 RMB/ton, a mere 0.3% decline. The reserve release, primarily composed of imported cotton, both supplements domestic supply and partially substitutes for direct import demand, keeping domestic prices relatively stable.
Internationally, the ICE cotton main contract averaged 80.59 cents/lb, up 0.3% week-on-week. Improved US cotton export data was a key driver, with USDA reporting net sales of 11,600 tons for the week ending July 16, up 49% week-on-week. Brazilian cotton exports also surged 32% year-on-year in the first three weeks of July. These figures suggest global cotton demand resilience exceeds prior market expectations.
The domestic-international price spread thus widened further. The International Cotton Index (M) averaged 88.45 cents/lb, translating to an import cost of approximately 14,618 RMB/ton (1% tariff), down 1.0% week-on-week. The spread expanded by about 95 RMB/ton, approaching 3,000 RMB/ton. For import buyers, the price advantage of imported cotton remains, but the reserve release of imported cotton is diverting some import demand.
Downstream Transmission: Yarn Prices Steady, Mills Show Restocking Interest
The cotton yarn market remained stable. Domestic C32S combed yarn averaged 23,318 RMB/ton, flat; imported C32S yarn averaged 22,970 RMB/ton, up 0.3%, maintaining a 348 RMB/ton inversion. Polyester staple fiber rose 129 RMB/ton to 7,584 RMB/ton, increasing substitution pressure on pure cotton yarn.
Industry surveys indicate high operating rates at spinning mills in Zhejiang, with export orders and profitability significantly outperforming domestic sales. As the traditional 'golden September and silver October' season approaches, mills' restocking appetite is growing. The first-week auction's 100% transaction rate and average price of 17,404 RMB/ton directly reflect this demand. For mills, the proportion of imported cotton in the reserve release becomes a key procurement variable given the high domestic-international price spread.
Macro Headwinds: Trade Friction and Shipping Risks
On the macro front, global trade uncertainties are rising. On July 23, the USTR announced 10%-12.5% tariffs on 60 countries under Section 301, with a 12.5% rate on China. This will directly raise Chinese textile export costs to the US. Meanwhile, the EU fined AliExpress 550 million euros under the Digital Services Act, potentially constraining small parcel direct-shipment models and suppressing apparel and footwear small-package exports.
Shipping risks persist amid Middle East tensions. A JP Morgan report shows daily Very Large Crude Carrier transits through the Strait of Hormuz dropped from 8 to 2 since late June, reducing crude oil shipments by about 12 million barrels. This keeps international oil prices and shipping costs elevated, adding uncertainty to global supply chains. For mills relying on imported cotton, rising shipping costs directly erode the price advantage of imported fiber.
Growing Region Updates: Heat Risk and Acreage Reduction
In Xinjiang, ample sunlight and high accumulated temperatures favor boll formation and later boll weight. However, sustained high temperatures and low rainfall in some southern areas increase local irrigation pressure, raising the risk of boll shedding. Inland surveys show Hebei and Shandong growth comparable to last year, Hunan acreage stable, while Hubei may face acreage reduction. Overall, new crop output expectations remain unclear, but high temperatures could become a key market disruptor later.