The first week of central reserve cotton auctions delivered a clear signal: mills are eager to restock. Since July 20, the auctions achieved a 100% transaction rate with an average price of 17,404 yuan/ton, reflecting notable premiums. Yet this heat did not spill over to the futures market—the Zhengzhou Cotton Futures main contract averaged just 15,980 yuan/ton, down 0.5% week-on-week. The gap between spot and futures reveals industry divergence: reserve supplies cap upside, while demand recovery expectations provide a floor.
Widening domestic-international price gap
International dynamics were more complex. ICE cotton futures rebounded to an average of 80.59 cents/lb, up 0.3%, supported by improved US export data and rising commodity prices. USDA data showed US net export sales for 2025/26 jumped 49% week-on-week, while Brazil's daily exports in the first three weeks of July surged 32% year-on-year. Global cotton demand is showing signs of recovery. However, China's reserve auctions, which primarily sell imported cotton, partially replaced direct imports, dragging the International Cotton Index (M) down 1.0% to 88.45 cents/lb, translating to an import cost of 14,618 yuan/ton. The domestic-international price gap widened by 95 yuan/ton, or 3.3%, making imported cotton more cost-effective for mills with quotas.
Macro headwinds intensify
Beyond fundamentals, macro disruptions are escalating. On July 23, the USTR announced 12.5% tariffs on Chinese goods under Section 301, part of broader tariffs on 60 countries. On July 20, the EU fined AliExpress 550 million euros under the Digital Services Act, raising compliance costs for cross-border e-commerce small-packet shipments. For apparel and footwear exported via small parcels, this could be a material headwind. Meanwhile, Middle East tensions have slashed crude shipments through the Strait of Hormuz, keeping oil prices and shipping costs elevated. Textile exporters must brace for higher logistics costs and delivery delays.
Downstream restocking picks up, but weather risks loom
Though it is still the off-season, mill operating rates in Zhejiang remain high, with export orders outperforming domestic ones. As the peak season approaches, restocking sentiment is strengthening—the 100% auction transaction rate is proof. However, weather risks in China's cotton-growing regions cannot be ignored. Xinjiang's southern areas face persistent high temperatures and low rainfall, increasing local irrigation stress and threatening boll shedding. Hubei's planted area may shrink, while Hunan, Hebei, and Shandong report normal growth. Reserve sales ease supply concerns before the new crop arrives, but weather could become a trigger for price volatility.