The first week of China's reserve cotton auctions delivered a 100% transaction rate, with premiums exceeding market expectations. This signals that despite the current off-season for textile consumption, downstream enterprises' urgency for raw material restocking has significantly increased.
Reserve Auctions: Premiums and Supply-Demand Dynamics
The central reserve cotton sales launched on July 20, with a planned release of 40,100 tons in the first week, all fully transacted. The auction premium rate continued to rise, with an average transaction price of 17,404 yuan per ton, higher than the domestic spot price. This reflects two key facts: first, the quality of reserve cotton, especially imported cotton, is well-received by the market, precisely meeting mills' demand for high-grade cotton; second, textile mills have clear concerns about supply gaps before the new cotton crop arrives, driving up premiums through aggressive bidding.
From a price perspective, domestic cotton prices did not decline due to the reserve release. The Zhengzhou Cotton Futures main contract averaged 15,980 yuan per ton, down only 0.5% from the previous week; the National Cotton Price B Index averaged 17,610 yuan per ton, down just 0.3%. This data indicates that the reserve release plays a role in 'filling gaps' rather than suppressing prices. For buyers, current domestic cotton prices are in a narrow fluctuation range with limited downside.
External Strength vs. Domestic Stability: Widening Price Gap
In contrast to the domestic market's stability, international cotton prices rose significantly under multiple factors. The ICE cotton futures main contract averaged 80.59 cents per pound, reclaiming the 80-cent threshold. Drivers include improved US cotton export data—net sales for the week of July 10-16 surged 49% week-on-week—and strong Brazilian cotton exports, with average daily exports in the first three weeks of July up 32% year-on-year, reflecting robust international demand.
More critical variables come from the macro level. On July 23, the U.S. Trade Representative announced tariffs of 10%-12.5% on 60 countries under Section 301, with China facing a 12.5% tariff. This policy directly raises the landed cost of imported cotton. Meanwhile, tensions in the Middle East persist, with crude oil traffic through the Strait of Hormuz sharply declining, keeping international oil prices and shipping costs high. Under these combined factors, the International Cotton Index (M) averaged 88.45 cents per pound, down 1.0% week-on-week, but the converted import cost was still 14,618 yuan per ton, widening the domestic-import price gap by 95 yuan per ton compared to the previous week.
What does the widening price gap mean for textile mills? First, the price advantage of imported cotton is weakened, potentially shifting procurement focus toward domestic reserve or spot cotton. Second, export-oriented mills face relatively controllable raw material cost pressures but must watch for order fluctuations due to tariffs and shipping risks.
Industry Transmission: Yarn Markets and Mill Behavior
Fluctuations at the raw material end are transmitting downstream. Domestic C32S combed yarn averaged 23,318 yuan per ton, stable, while imported yarn averaged 22,970 yuan per ton, with a narrow price gap of only 348 yuan per ton, significantly reducing imported yarn's price advantage. Polyester staple fiber prices rose 129 yuan per ton to 7,584 yuan per ton, weakening chemical fiber substitution advantages.
From mill behavior, operating rates in Zhejiang remain high, with export orders and profitability significantly outperforming domestic sales. This suggests that current demand recovery is structural: export-oriented enterprises benefit from overseas restocking cycles, while the domestic market is constrained by off-season consumption and terminal inventory pressure. As the peak season approaches, mill restocking intent is strengthening, confirmed by the 100% auction transaction rate.
Risks and Outlook: Weather and Policy in Focus
Domestic cotton production areas are currently growing normally, but risks cannot be ignored. Persistent high temperatures and low rainfall in southern Xinjiang may cause boll shedding, affecting final yields. Planting area reductions are emerging in Hubei and Hunan. Combined, these factors may tighten supply expectations before the new crop arrives.
On the policy front, the U.S. 12.5% tariff on China and the EU's tightened regulation on cross-border e-commerce will increase uncertainty for textile and apparel exports. Although China's textile and apparel exports saw year-on-year and month-on-month growth in June, whether this momentum continues depends on the evolution of trade frictions.