In the last week of July 2026, China's cotton market saw a pivotal shift as the central reserve cotton auctions officially began. The first week's 40,100 tons were fully subscribed with significant premiums, revealing textile mills' genuine anxiety over supply gaps before the new crop arrives.
Meanwhile, international markets painted a different picture. ICE cotton futures averaged 80.59 cents/lb, up 0.3% week-on-week, while domestic Zhengzhou cotton futures traded narrowly at 15,980 yuan/ton. The domestic-international price spread widened to 95 yuan/ton, narrowing the cost advantage of imported cotton.
Reserve Auction Effects and Supply-Demand Rebalance
The 100% turnover rate and premium prices in the first week of auctions underscore market acceptance of reserve cotton as a supply buffer. At the current pace of around 40,000 tons per week, cumulative supply before the new crop (end-September) could reach 400,000 tons, covering routine mill restocking needs.
Regional surveys show Zhejiang mills running at high capacity, with export orders significantly outperforming domestic ones in profitability. As the traditional peak season approaches, some mills have initiated proactive restocking. Reserve cotton, primarily imported, helps balance port inventories and mitigates the impact of domestic-import price spreads on mill costs.
Drivers and Risks in International Cotton Prices
Improved US export data is the core driver of recent international price strength. USDA data shows net export sales of US upland cotton for the 2025/26 season reached 11,600 tons in the week ending July 16, up 49% week-on-week. Brazilian cotton exports also surged, with daily averages in the first three weeks of July up 32% from the full-month average of July 2025. Global cotton trade flows are increasingly concentrating in the Americas.
Ongoing Middle East tensions are pushing up import costs. Daily very large crude carrier transits through the Strait of Hormuz have dropped to just two, slashing crude oil shipments by 12 million barrels and driving up freight and energy costs. Although the international cotton index (M) average fell 1.0% week-on-week to 88.45 cents/lb, the yuan-denominated import cost still stands at 14,618 yuan/ton, above domestic spot prices.
Macro Headwinds and Trade Transmission
On July 23, the USTR announced 10%-12.5% tariffs on 60 countries, with China facing 12.5%. This, combined with the EU's €550 million fine on AliExpress, signals dual pressures: expansion of US Section 301 tools and tighter compliance for cross-border e-commerce small-package models. For textile exporters, the sustainability of June's $29.27 billion export value (a 2025 high) is now in question.
However, among 41 A-share textile and apparel listed companies, 23 reported positive net profit growth in interim forecasts, with 12 seeing over 100% growth, indicating leading firms retain strong cost-pass-through and order-selection capabilities. The stable cotton price environment from reserve auctions helps these firms lock in Q3 raw material costs.
Weather and Production Variables
Major domestic cotton-producing regions show normal crop development, but localized risks persist. Xinjiang's abundant heat and sunlight favor boll formation, but persistent high temperatures and low rainfall in southern areas increase irrigation pressure, raising the risk of boll shedding. Hubei province reports reduced planted area, suggesting shrinking supply elasticity from inland regions.
If high temperatures persist, Xinjiang cotton yields could decline 5%-8%, directly compressing supply after the new crop arrives. The reserve cotton's 'gap-filling' role will become even more critical post-September.
Price Outlook and Operational Recommendations
In summary, reserve cotton auctions cap domestic price upside in the near term, but peak-season restocking demand and low commercial inventories provide a floor. Zhengzhou cotton futures are expected to trade in the 15,500-16,500 yuan/ton range, with the domestic-import spread at 100-200 yuan/ton.