In the third week of July 2026, China's central reserve cotton auctions kicked off with 40,100 tons fully transacted in the first week, achieving a notable premium rate with an average transaction price of 17,404 yuan per ton. This outcome signals that downstream mills, despite the traditional off-season, are actively securing supply ahead of the new crop arrival, reflecting concerns over potential tightness before fresh cotton becomes available.
Price Trends: Domestic Stability vs. Overseas Strength
Domestically, cotton prices remained largely flat. The Zhengzhou Cotton Futures main contract averaged 15,980 yuan/ton, down 0.5% week-on-week, while the China Cotton Price B Index stood at 17,610 yuan/ton, a marginal decline of 0.3%. In contrast, ICE cotton futures averaged 80.59 cents/lb, up 0.3% from the prior week, reclaiming the 80-cent mark. Key drivers include a 49% surge in U.S. cotton export commitments to 11,600 tons, a 32% jump in Brazil's daily cotton exports in the first three weeks of July compared to last July's full-month average, and rising commodity prices amid Middle East geopolitical tensions.
The divergence between domestic and international markets is reflected in the widening price spread. The International Cotton Index (M) averaged 88.45 cents/lb, translating to an import cost of approximately 14,618 yuan/ton (1% tariff), down 1.0% week-on-week. The spread between domestic and imported cotton expanded to about 95 yuan/ton, up 3.3% from the previous week. This makes imported cotton more cost-advantageous, though the reserve auctions, which primarily offer imported cotton, have partially balanced import demand.
Downstream Dynamics: Yarn Stable, Chemical Fiber Rises
Cotton yarn prices were relatively stable. Domestic C32S combed yarn averaged 23,318 yuan/ton, unchanged from the prior week, while imported C32S yarn edged up 0.3% to 22,970 yuan/ton, still 348 yuan/ton cheaper than domestic yarn. Notably, polyester staple fiber prices rose 129 yuan/ton to 7,584 yuan/ton, a 1.7% increase. The shifting price ratio between chemical fiber and cotton may prompt some mills to adjust their blending ratios to control costs.
Macro Headwinds: Tariffs and Regulatory Tightening
On July 23, the U.S. Trade Representative announced 10%-12.5% tariffs under Section 301 on 60 countries, with China facing the highest rate of 12.5%. Although lower than earlier fears of 20%-25%, the broad coverage and swift implementation have rattled exporters. Meanwhile, on July 20, the European Commission fined Alibaba's AliExpress €550 million under the Digital Services Act, signaling stricter oversight of cross-border e-commerce small-packet shipments, which could curb Chinese apparel and footwear exports via that channel.
Geopolitical tensions in the Middle East persist. JPMorgan reported that daily passages of very large crude carriers through the Strait of Hormuz have dropped from eight to just two since late June, slashing crude oil shipments by about 12 million barrels. High shipping costs continue to pressure logistics and delivery timelines for textile exports.
Crop Conditions and Restocking Pace
Domestic cotton-growing regions report generally normal crop development. Hebei and Shandong show year-on-year parity, Hunan maintains stable acreage, while Hubei may see a slight reduction. Xinjiang enjoys ample sunlight and heat, benefiting boll formation and weight, but persistent high temperatures and low rainfall in southern Xinjiang increase local irrigation stress, raising the risk of boll shedding.
Surveys indicate that spinning mills in Zhejiang maintain high operating rates, with export orders and profitability significantly outperforming domestic sales. As the traditional peak season (September-October) approaches, some mills are showing stronger restocking intentions. The first-week reserve auction saw all 40,100 tons transacted at an average price of 17,404 yuan/ton, with a notable premium, indicating good market acceptance and cautious supply expectations.
Market Outlook
In the near term, reserve cotton auctions will continue to supplement supply, capping domestic price upside. However, active mill restocking and auction premiums provide price support. The market is expected to trade in a narrow range. Key mid-term variables include the actual impact of the 12.5% U.S. tariff and subsequent negotiations, as well as weather conditions in major producing regions like Xinjiang, the U.S., and Brazil.