The first week of the central reserve cotton release, starting July 20, 2026, delivered an exceptionally strong performance: all 40,100 tons offered were fully transacted, with premium rates remaining high. This signal directly reflects textile mills' urgent demand for high-quality cotton before the new crop arrives, and also means that the short-term price floor for domestic cotton is already well-established.
From a price perspective, the divergence between domestic and international markets is widening. The average price of the Zhengzhou Cotton Futures main contract was only 15,980 yuan/ton, down 0.5% from the previous week. In contrast, the ICE cotton futures main contract averaged 80.59 cents/lb, up 0.3% week-on-week. As a result, the domestic-international price gap expanded to approximately 2,960 yuan/ton (at 1% tariff), widening by about 95 yuan/ton from the prior week.
Dual Pressure from External Demand Recovery and Trade Barriers
The recent rally in the international market is not an isolated event. US cotton export data showed a significant rebound: USDA data for the week ending July 16 indicated net export sales of 2025/26 US upland cotton reached 11,600 tons, up 49% from the previous week. Brazilian cotton exports were also robust, with average daily exports in the first three weeks of July surging 32% compared to the full-month daily average of July last year. These figures point to a clear fact: global cotton demand has not weakened; instead, it has resumed activity after a period of adjustment.
However, the external trade environment is tightening simultaneously. The US has imposed tariffs of 10%-12.5% on 60 countries under Section 301 of the Trade Act of 1974, with China facing a 12.5% rate. The European Commission fined AliExpress 550 million euros under the Digital Services Act, raising compliance costs for the small-packet direct mail model. For small and medium textile enterprises that rely on cross-border e-commerce channels for shoe and apparel exports, this could be a more direct blow than tariffs.
Ongoing tensions in the Middle East are further pushing up shipping costs. A JP Morgan report indicated that the average daily transit of very large crude carriers through the Strait of Hormuz has plummeted from 8 vessels in late June to just 2, with crude oil transport volume dropping by about 12 million barrels. The linkage effect between oil prices and freight rates has not yet fully transmitted to the textile supply chain, but the risk exposure is expanding.
Industrial Belt Response: Replenishment Intentions Coexist with Heat Risk
Based on surveys from industrial belts in China, spindle utilization rates in the Zhejiang area remain high, with export orders and profitability significantly outperforming domestic sales. This explains why the reserve cotton release achieved a 100% transaction rate—mills need to secure raw materials in advance to prepare for the peak "Golden September and Silver October" season.
On the production side, most areas in Xinjiang have sufficient sunlight and heat, with high accumulated temperatures conducive to cotton boll formation. However, persistent high temperatures and low rainfall in parts of southern Xinjiang have increased local irrigation pressure, raising the risk of boll shedding. Cotton growth in Hebei and Shandong is comparable year-on-year, while Hunan's planting area is stable. Hubei may face a reduction in cotton acreage. Overall, new crop production expectations are acceptable, but high temperatures remain the biggest variable.
Short-Term Price Anchoring and Medium-Term Uncertainty
The reserve cotton release has effectively supplemented supply, capping the upside for domestic cotton prices. At the same time, mills' replenishment demand provides a price floor. Over the next month, domestic cotton prices are expected to trade in a narrow range, with the Zhengzhou main contract likely oscillating between 15,800 and 16,200 yuan/ton.
In the medium term, three factors require close attention: the duration of high temperatures in Xinjiang and other major producing areas from late July to early August; the actual impact of US tariff hikes on textile export orders; and the transmission effects of Middle East tensions on international shipping and energy costs.