The first week of central reserve cotton auctions kicked off with a 100% transaction rate and notable premiums, signaling strong market acceptance of policy-driven supply. This injection helped stabilize domestic cotton prices, with the Zhengzhou Cotton Futures main contract averaging 15,980 yuan/ton, down just 0.5% week-on-week. Meanwhile, international cotton prices rallied as ICE futures reclaimed the 80 cents/lb level, driven by improved US export sales and a broader commodity rally. US cotton net export sales for the week ending July 16 surged 49% week-on-week to 11,600 tons, while Brazil's daily cotton exports in the first three weeks of July jumped 32% year-on-year, underscoring robust global demand.
The resulting domestic-international price spread widened by approximately 95 yuan/ton, making imported cotton about 3,000 yuan/ton cheaper than domestic spot. This price gap is reshaping procurement strategies, as reserve auctions—primarily offering imported cotton—partially offset import demand but may steer mills toward foreign cotton for cost savings.
Despite the traditional off-season, textile mills in Zhejiang maintained high operating rates, with export orders and profitability significantly outperforming domestic sales. As the 'Golden September and Silver October' peak season approaches, restocking appetite is rising. The reserve auctions sold 40,100 tons at an average price of 17,404 yuan/ton, with premiums reflecting mills' concerns about supply tightness before the new crop arrives.
Downstream data supports this optimism: June textile and apparel exports reached $29.27 billion, up 14.3% month-on-month and 7.2% year-on-year, the highest monthly figure since January 2025. Among 41 listed textile firms, 23 expect net profit growth in H1, with 12 forecasting over 100% growth, indicating a steady demand recovery.
On the macro front, the US imposed 12.5% tariffs on Chinese goods under Section 301, effective July 23, while the EU fined AliExpress €550 million under the Digital Services Act. These policies directly impact textile exporters' costs and channel stability, particularly for small-packet direct shipping models. Additionally, Middle East tensions have slashed oil tanker traffic through the Strait of Hormuz to just 2 vessels per day, keeping oil prices and shipping costs elevated—a hidden cost burden for textile exports.
Domestic cotton-producing regions are mostly favorable, with ample heat and light in Xinjiang supporting boll formation, though persistent high temperatures and drought in southern Xinjiang raise irrigation concerns. Hebei and Shandong report normal growth, while Hunan's acreage is stable but Hubei may see a reduction. Weather will be a key price driver in the coming weeks.
In the near term, reserve auctions will cap domestic price upside by alleviating supply fears before the new crop. At the same time, active mill restocking provides a price floor. Expect domestic cotton prices to remain relatively stable, but watch for tariff implementation, shipping disruptions, and Xinjiang weather as wild cards.