The first week of reserve cotton auctions saw a 100% clearance rate with notable premiums, yet domestic cotton prices fluctuated only narrowly. This contrast reflects a tug-of-war between short-term supply relief and medium-term demand resilience. Meanwhile, ICE cotton futures regained the 80 cents/lb threshold, widening the domestic-international price gap by RMB 95/ton week-on-week, directly impacting mill procurement strategies.
Auction First Week: Supply-Demand Logic Behind Premiums
On July 20, the central reserve cotton sales were officially launched, with 40,100 tons sold in the first week, all cleared, at an average price of RMB 17,404/ton. The high premium rate indicates mills' acceptance of reserve cotton quality and pricing, especially as new crop cotton is not yet available and social inventories are tight. The auctions effectively supplemented spot supply.
Price-wise, the Zhengzhou Cotton Futures main contract averaged RMB 15,980/ton, down just 0.5% week-on-week, while the China Cotton Price Index B averaged RMB 17,610/ton, down 0.3%. The extremely narrow fluctuation range suggests that the increased supply did not significantly depress prices; instead, premium bids signal strong downstream buying interest, providing a floor for cotton prices.
External Strength: Global Supply-Demand and Macro Headwinds
Internationally, the ICE cotton main contract averaged 80.59 cents/lb, up 0.3% week-on-week. Support came from two factors: a broad rally in agricultural commodities and improved US cotton export data—net sales for the 2025/26 season jumped 49% week-on-week as of July 16. Brazilian cotton also showed strength, with daily export volumes in the first three weeks of July surging 32% year-on-year, reflecting a phase of global textile demand recovery.
However, macro pressures cannot be ignored. The US imposed a 12.5% tariff on China under Section 301, while the EU fined AliExpress EUR 550 million under the Digital Services Act, tightening cross-border e-commerce regulation. Additionally, ongoing Middle East tensions have reduced crude oil traffic through the Strait of Hormuz, pushing up shipping costs. These factors create a dual drag on textile exports: direct tariff cost increases and restrictions on small-package direct delivery models.
Impact of Widening Price Gap on Procurement Strategy
The reserve auctions primarily involve imported cotton, partially replacing import demand and causing the International Cotton Index (M) to average 88.45 cents/lb, down 1.0% week-on-week, equivalent to an import cost of RMB 14,618/ton. The domestic-international price gap widened by RMB 95/ton, meaning the price advantage of imported cotton is shrinking.
For mills, if the gap continues to widen, imported cotton becomes less attractive, prompting them to rely more on reserve auction purchases or domestic spot procurement. However, reserve auction volumes are limited (40,100 tons in the first week), and premiums already reflect demand. If the import window narrows further, domestic cotton prices may gain stronger support.
Key Variables Ahead: Weather, Orders, and Policies
On the production side, Xinjiang enjoys favorable light and heat conditions overall, but persistent high temperatures and low rainfall in southern Xinjiang increase local irrigation pressure, raising risks of bud and boll shedding. Hebei and Shandong show growth comparable to last year, Hunan maintains stable acreage, while Hubei faces reductions. The textile market remains in off-season, but mill utilization rates in Zhejiang stay high, with export orders and profitability outperforming domestic sales. As the 'golden September and silver October' approach, some mills have begun early restocking.
On the policy front, the drag from US tariffs and EU regulatory tightening will become more apparent in Q3. June textile and apparel exports reached USD 29.271 billion, up 14.3% month-on-month and 7.2% year-on-year, a new high for 2025, but this base may be unsustainable.