The first week of China's central reserve cotton auctions delivered a strong performance: all 40,100 tons offered were fully transacted, with significant premiums. This not only confirms the market's acceptance of policy-driven supply but also reflects textile mills' anxiety about supply before the new crop arrives—even though it is still the traditional off-season, restocking intentions have already warmed up.
Price Divergence: Stable Domestic, Strong International, Widening Spread
The domestic spot market remained stable thanks to continuous reserve releases. The National Cotton Price B Index averaged 17,610 yuan/ton, down only 0.3% week-on-week; the Zhengzhou Cotton Futures主力 contract settled at 15,980 yuan/ton, a weekly decline of 0.5%. The reserve cotton transaction price averaged 17,404 yuan/ton, about 206 yuan/ton lower than the spot index, but the premium suggests strong downstream acceptance.
Internationally, the ICE cotton futures主力 contract averaged 80.59 cents/lb, up 0.3% for the week, reclaiming the psychological 80-cent level. Three factors drove this: first, escalating Middle East tensions boosted overall commodity prices; second, US cotton export sales surged 49% week-on-week, indicating buying interest; third, Brazil's cotton exports in the first three weeks of July jumped 32% year-on-year in daily average volume, reflecting robust global demand.
The domestic-international price spread widened further. The International Cotton Index (M) averaged 88.45 cents/lb, which translated to a landed cost of 14,618 yuan/ton (1% tariff), down 1.0% from the previous week, causing the spread to expand by 95 yuan/ton, or 3.3%. This means the cost advantage of imported cotton is eroding, making reserve cotton more attractive for domestic mills.
Chain Transmission: Yarn Prices Stable, Chemical Fibers Follow Upstream
Downstream cotton yarn prices remained broadly stable, with C32S combed yarn averaging 23,318 yuan/ton, virtually unchanged from the previous week. Imported yarn averaged 22,970 yuan/ton, 348 yuan/ton below domestic yarn—a gap that persists but hasn't widened significantly, suggesting imported yarn's competitiveness hasn't been severely undermined by rising international cotton prices.
Notably, polyester staple fiber prices rose 129 yuan/ton to 7,584 yuan/ton. The substitution relationship between chemical fibers and cotton will be re-evaluated by the market: if cotton prices stay stable while chemical fibers rise, cotton's cost advantage may stage a comeback.
Macro Variables: Dual Pressure from Tariff Barriers and Regulatory Tightening
On July 23, the US Trade Representative announced tariffs of 10%-12.5% on 60 countries and regions, with China facing a 12.5% rate. This is a direct negative for textile and apparel exports—although June exports hit a year-to-date high of $29.271 billion, the new tariffs will raise end-user prices and may dampen demand.
In the EU, on July 20, a €550 million fine was imposed on AliExpress under the Digital Services Act. While targeting the platform, tighter regulation will increase compliance costs and constrain the small-package direct mail model, potentially suppressing Chinese footwear and apparel cross-border parcels.
Additionally, the Strait of Hormuz has seen a sharp drop in very large crude carrier traffic, with oil shipments plummeting by 12 million barrels, pushing up international oil prices and shipping costs. For textile companies reliant on imported cotton and export garments, logistics cost pressures are unlikely to ease soon.
Production Areas: Xinjiang Has Ample Sunlight but High-Temperature Risk
Growing conditions in China's major cotton-producing regions are generally normal. Xinjiang has favorable sunlight and heat for boll formation, but persistent high temperatures and low rainfall in southern Xinjiang are increasing local irrigation pressure, raising concerns about boll shedding. In the interior, Hebei and Shandong have growth comparable to last year, Hunan has stable planted acreage, and Hubei faces reductions.
On the supply side, reserve cotton auctions have effectively eased pre-new-crop supply anxiety. However, mills' restocking is not indiscriminate: a Zhejiang survey shows spinning mills operating at high capacity, but export orders and profitability significantly outperform domestic sales, indicating the domestic recovery remains weaker than exports.