The first week of China's central reserve cotton sales, starting July 20, 2026, recorded a 100% auction rate and notable premiums, signaling strong mill demand. Domestic cotton prices, however, remained range-bound, with Zhengzhou futures averaging 15,980 RMB/ton, down just 0.5% week-on-week. In contrast, ICE cotton futures rebounded above 80 cents/lb, supported by improved U.S. export data and a broad rally in commodities. The domestic-international price spread widened to approximately 3,000 RMB/ton, making imported cotton more cost-attractive.
Reserve Sales: Short-Term Supply Relief and Price Anchoring
The central reserve released 40,100 tons in the first week, all sold at an average price of 17,404 RMB/ton, roughly 200 RMB/ton below the domestic spot index. This pricing anchor has eased supply concerns ahead of the new crop arrival. Mills in Zhejiang are operating at high capacity, with export orders outperforming domestic ones. Restocking for the 'Golden September and Silver October' season has begun, but the stable reserve supply caps any near-term price upside.
International Cotton: Demand Recovery Amid Macro Risks
ICE cotton averaged 80.59 cents/lb, up 0.3% weekly. Drivers include a 49% jump in U.S. cotton net sales for the week ending July 16, a 32% surge in Brazilian cotton exports, and rising commodity prices due to Middle East tensions. However, macro headwinds loom: the U.S. imposed a 12.5% tariff on Chinese goods under Section 301 on July 23, and the EU fined AliExpress €550 million, tightening cross-border e-commerce rules. Additionally, oil tanker traffic through the Strait of Hormuz has dropped 75%, keeping shipping costs elevated.
Supply Chain Dynamics: Diverging Costs and Demand
Domestic cotton yarn prices held steady at 23,318 RMB/ton for C32S, while imported yarn was 348 RMB/ton cheaper. Polyester staple fiber rose 1.7% to 7,584 RMB/ton on higher crude oil costs. This divergence is shifting mill procurement: some are substituting domestic yarn with imports, while rising polyester costs pressure blended product margins. China's textile and apparel exports hit a 2025 high of $29.27 billion in June, and 23 of 41 listed textile firms reported H1 profit growth. Still, the new U.S. tariff could slow export momentum in H2.
Weather and Restocking: Xinjiang Heat a Key Variable
Cotton growth in major production areas is normal, but persistent high temperatures in southern Xinjiang are raising irrigation stress and boll-shedding risks. Hebei and Shandong crops are on par with last year, while Hubei faces acreage reductions. Mills' restocking appetite is supported by peak-season expectations and reserve availability. Any extreme weather in Xinjiang could disrupt production estimates and push prices higher. Conversely, normal weather combined with reserve sales may create oversupply.