China's central reserve cotton sales kicked off with a strong performance this week: all 40,100 tons offered were fully subscribed, with notable auction premiums. This release directly offsets supply gaps ahead of the new crop, keeping domestic cotton prices range-bound around the Zhengzhou futures average of 15,980 RMB/ton. Meanwhile, international cotton prices rebounded, with ICE futures back above 80 cents/lb, driven by escalating Middle East tensions and a 49% surge in US weekly export sales. The domestic-international price gap widened to approximately 3,000 RMB/ton, making imported cotton significantly more cost-advantageous.
Widening Price Gap: Import Advantage Grows
The China Cotton Price Index B averaged 17,610 RMB/ton this week, down 0.3% week-on-week, while the International Cotton Index M, converted to RMB, stood at only 14,618 RMB/ton. The spread expanded by 95 RMB/ton from the prior week. For mills with import quotas, the cost advantage of foreign cotton is now compelling. However, the fact that the reserve releases are primarily imported cotton has partially substituted direct imports, which is reflected in the M index's 1.0% weekly decline—large-scale domestic sales of imported reserves are exerting downward pressure on international spot prices.
Demand Divergence: Export Orders Outperform Domestic, Restocking Window Approaches
Although the textile market remains in a traditional off-season, mill operating rates in Zhejiang Province stayed high, with export orders and profitability markedly outperforming domestic sales. June textile and apparel exports hit a year-to-date high of $29.271 billion, up 7.2% year-on-year. Among 41 A-share textile and apparel companies, nearly 60% reported year-on-year net profit growth in their interim forecasts. This export resilience is providing tangible support for upstream raw material demand. As the peak season approaches, mills are increasingly inclined to restock. The reserve sales not only alleviate supply tightness but also support prices through premium bids.
Production Risk: Xinjiang Heat Threatens Cotton Yields
On the supply side, weather in Xinjiang remains a wildcard. While most regions have sufficient heat and sunlight for boll formation, persistent high temperatures and low rainfall in southern Xinjiang are increasing irrigation stress and the risk of boll shedding. Surveys from the China Cotton Market Monitoring System indicate normal growth in Hebei and Shandong, stable acreage in Hunan, but potential acreage reductions in Hubei. Overall, domestic new-crop output expectations remain uncertain. If the heatwave persists, yield downgrades could become a key market theme in the coming weeks.
Macro Headwinds: Tariff Hikes and Shipping Risks Converge
On the macro front, the US imposed a 12.5% tariff on China under Section 301, directly raising textile export costs. The EU fined AliExpress €550 million under the Digital Services Act, tightening regulations on small parcel direct shipping. Meanwhile, Very Large Crude Carrier transit through the Strait of Hormuz has plummeted to just two vessels per day, slashing crude oil shipments and pushing up maritime freight costs. These factors will collectively raise operating costs for textile exporters and may delay order placements.