The first week of central reserve cotton sales, launched on July 20, 2026, saw a 100% transaction rate with significant premiums, indicating mills' clear anticipation of near-term supply tightness. Despite the traditional off-season, the auction of 40,100 tons was fully absorbed at an average price of 17,404 yuan/ton, providing a floor for the spot market.
Price Divergence Widens Domestic-International Spread
Domestic cotton prices remained stable under reserve supply, with the Zhengzhou futures main contract averaging 15,980 yuan/ton, down only 0.5% week-on-week. In contrast, ICE cotton futures averaged 80.59 cents/lb, up 0.3%. International strength was driven by a 49% jump in US cotton export commitments and a 32% surge in Brazilian daily exports compared to last July. The domestic-international price spread widened 3.3% to nearly 3,000 yuan/ton, with imported cotton costing 14,618 yuan/ton, significantly below domestic levels, challenging mills' procurement strategies.
Trade Headwinds Rise, Export Resilience Persists
The external policy landscape is shifting. The US imposed 10%-12.5% tariffs on 60 countries via Section 301, with China at the 12.5% rate. The EU fined AliExpress €550 million under the Digital Services Act, raising compliance costs for small-packet exports. Despite this, June textile and garment exports hit a 2025 high of $29.27 billion, up 14.3% month-on-month and 7.2% year-on-year. Among 41 listed textile firms, 23 forecast net profit growth in H1, with 12 expecting over 100% increases. Export resilience suggests improved adaptation, but cumulative policy impacts may lag.
Weather and Restocking Become Short-Term Focus
Cotton growing regions are generally normal, but risks are building. Xinjiang has ample heat for boll formation, but persistent high temperatures in southern areas are increasing irrigation pressure and the risk of boll shedding. Mills in Zhejiang maintain high operating rates, with export orders outperforming domestic ones. As the September-October peak season approaches, restocking intentions are rising. Reserve sales ease supply concerns, while auction premiums provide price support.
Outlook: Stable Near-Term, Watch Key Variables
In the short term, reserve sales cap upside but premiums limit downside, keeping prices in a narrow range. Medium-term focus should be on three variables: sustainability of US and Brazilian export demand; shipping cost impacts from Middle East tensions—VLCC passages through the Strait of Hormuz have dropped from 8 to 2 daily; and whether high temperatures in China's growing regions lead to actual production losses.