The first week of China's central reserve cotton auctions delivered a "full turnover" result: all 40,100 tons were absorbed by the market at an average price of RMB 17,404/ton, with notable premiums. This dual signal reveals both mills' genuine anxiety over supply gaps before the new crop and the reshaping of the domestic-international price gap—which widened to RMB 2,952/ton, up 3.3% week-on-week—as the reserve mainly consists of imported cotton.
Divergence Between Domestic and International Markets
The domestic Zhengzhou Cotton Futures main contract settled near RMB 15,980/ton, down only 0.5% week-on-week, while ICE cotton futures averaged 80.59 cents/lb, up 0.3% and regaining the 80-cent threshold. This divergence is no coincidence: domestic supply is cushioned by reserve releases, while international prices are buoyed by Middle East tensions, rising commodity prices, and improved US export data.
Brazilian cotton exports in the first three weeks of July averaged 7,321.52 tons per day, surging 32% from the July 2025 daily average. US cotton export commitments for the week of July 10-16 jumped 49% week-on-week. These figures point to robust global demand, but the sourcing center is shifting—Chinese mills are increasingly blending reserve and domestic cotton rather than relying on imports.
Policy and Geopolitical Risks Weigh on Foreign Trade
On July 23, the USTR announced 301 tariffs on 60 countries, with Chinese goods facing a 12.5% rate. While lower than the expected 15-20%, this, combined with the EU's €550 million fine on AliExpress under the Digital Services Act, signals stricter compliance and cost pressures for Chinese textile exporters.
The Middle East impact is more direct. JPMorgan reports that daily supertanker transits through the Strait of Hormuz have dropped from 8 to 2, slashing crude oil flows by about 12 million barrels. This has pushed up oil prices and shipping costs, squeezing margins for textile exporters reliant on sea freight.
Weather and Restocking: Key Variables Before Peak Season
China's cotton growing regions show divergence: Xinjiang has favorable heat and light conditions but southern areas face irrigation stress from prolonged heat, risking boll shedding. Hebei and Shandong are normal, Hunan's acreage is stable, but Hubei faces area reduction.
- Mills in Zhejiang maintain high operating rates, with export orders and profits significantly outperforming domestic sales
- As the "Golden September and Silver October" approach, restocking intent is rising, evidenced by high auction premiums
- June textile and apparel exports reached $29.271 billion, up 14.3% month-on-month and 7.2% year-on-year, a new 2025 high
These data suggest that despite macro headwinds, end-user demand has not collapsed—it has simply become structurally "strong abroad, weak at home."