Domestic cotton prices are oscillating narrowly, awaiting direction. But the first week's data from the central reserve cotton release has already sent a clear signal: the market's thirst for high-quality cotton is far from masked by the off-season appearance.
Premium Bidding Reveals Real Supply-Demand Dynamics
The central reserve cotton release, which began on July 20, put 40,100 tons on the market in its first week, all fully transacted. Bidding premiums were generally high, with an average transaction price of 17,404 yuan/ton, only 206 yuan below the parallel National Cotton Price B Index of 17,610 yuan/ton. This indicates strong downstream mill recognition of reserve cotton quality. This "rush" is not emotionally driven, but based on a real structural shortage of high-quality domestic cotton before the new crop arrives. The release, dominated by imported cotton, precisely fills this gap.
During the same period, the main Zhengzhou Cotton Futures contract settled at an average of 15,980 yuan/ton, down only 0.5% week-on-week, with extremely narrow price fluctuation. This divergence between a hot spot market and a cold futures market shows mills prioritize immediate supply over forward expectations. The sustained release of reserve cotton does cap upside price potential in the short term, but also provides a hard floor for the supply chain.
Widening Domestic-Foreign Spread: Three Drivers for Overseas Strength
In stark contrast to stable domestic prices, the main ICE cotton futures contract averaged 80.59 cents/lb, up 0.3% week-on-week, reclaiming the 80-cent mark after several weeks. The International Cotton Index (M) averaged 88.45 cents/lb, translating to a landed cost of 14,618 yuan/ton (1% tariff). This widened the domestic-foreign spread to 2,952 yuan/ton, up 3.3% from the previous week.
Overseas strength is not single-factor driven. First, U.S. cotton export data showed a temporary recovery, with net sales for the 2025/26 season surging 49% week-on-week for the period ending July 16. Brazilian cotton exports were also strong, with average daily exports in the first three weeks of July surging 32% compared to the full-month daily average of July last year. Both point to resilient global demand.
Second, macro headwinds are at play. On July 23, the U.S. announced 10%-12.5% tariffs on 60 countries, including 12.5% on China, fueling risk premiums on commodities. Meanwhile, ongoing Middle East tensions have sharply reduced oil tanker traffic through the Strait of Hormuz, keeping oil and shipping costs elevated, indirectly raising the landed cost of international cotton.
Export Recovery, but Policy Risks Loom
China's textile and apparel exports in June reached $29.271 billion, up 14.3% month-on-month and 7.2% year-on-year, the highest monthly figure in 2025. This suggests external demand is not as weak as some pessimists feared. Notably, spinning mills in Zhejiang are running at high capacity, with export orders significantly outperforming domestic orders in profitability.
However, export tailwinds have limits. The European Commission fined AliExpress 550 million euros under the Digital Services Act, tightening regulations on small-packet direct delivery—a key channel for many small and medium-sized textile exporters. Combined with new U.S. tariffs, foreign trade firms face rising compliance costs and policy uncertainty.
Weather and Restocking Pace to Determine Q3 Cotton Prices
Cotton growth in major domestic production areas is generally normal, but the risk lies in persistent high temperatures and low rainfall in southern Xinjiang, increasing local irrigation pressure and potentially causing boll shedding. While accumulated temperatures in Xinjiang favor boll formation, extreme weather remains the biggest mid-term supply variable.
On the textile side, despite the traditional off-season, some mills have begun early restocking ahead of the "golden September and silver October" peak season. The reserve release has eased mills' concerns about supply tightness before the new crop, but high bidding premiums indicate that if the release pace slows or quality declines, market tension could quickly return.