China's central reserve cotton auctions kicked off on July 20, 2026, with all 40,100 tons sold in the first week at an average price of 17,404 RMB/ton, reflecting notable premiums. The move effectively offset supply tightness ahead of the new crop, keeping domestic cotton prices range-bound. Zhengzhou futures averaged 15,980 RMB/ton, down 0.5% week-on-week.
Widening China-Internal Spread Boosts Import Appeal
The price gap between domestic and international cotton widened further. The International Cotton Index (M) averaged 88.45 cents/lb, translating to 14,618 RMB/ton (1% duty), down 1.0% from the prior week. In contrast, China's standard-grade cotton averaged 17,610 RMB/ton, pushing the spread to about 3,000 RMB/ton. This gap makes imported cotton increasingly attractive to mills, especially as reserve auctions are primarily of imported cotton, partially substituting direct imports.
Internationally, ICE cotton futures averaged 80.59 cents/lb, up 0.3%. Supporting factors included improved US export data—net sales of 11,600 tons in the week ending July 16, up 49% week-on-week—and robust Brazilian exports averaging 7,321 tons per day in the first three weeks of July, up 32% year-on-year. Geopolitical tensions in the Middle East also lifted commodity and shipping costs.
Mills Maintain High Operating Rates, Restocking Intensifies
Despite the traditional off-season, spinning mills in Zhejiang operated at elevated rates, with export orders and profitability outperforming domestic sales. As the peak season approaches, restocking demand has strengthened. The 100% auction turnover rate and premiums in the first week confirm this trend.
Domestic yarn prices held steady at 23,318 RMB/ton for C32S combed yarn, while imported yarn edged up to 22,970 RMB/ton, narrowing the discount to 348 RMB/ton. Polyester staple fiber rose 129 RMB/ton to 7,584 RMB/ton, but its substitution effect on cotton remains limited.
Macro Risks: New Tariffs and Tighter EU Rules
On July 23, the US Trade Representative announced tariffs of 10%-12.5% on 60 countries, with China facing the highest rate of 12.5%. This will directly raise export costs for textile and apparel shipments to the US, pressuring order competitiveness. On July 20, the European Commission fined AliExpress €550 million under the Digital Services Act, signaling tighter regulation of small-packet cross-border e-commerce, which could dampen apparel and footwear exports via that channel.
Meanwhile, Middle East tensions have slashed supertanker traffic through the Strait of Hormuz from 8 to 2 per day, cutting oil shipments by about 12 million barrels. Elevated shipping and energy costs will continue to pressure textile supply chains.
Crop Conditions Normal, But Heat Risk Looms
China's cotton growing regions are broadly on track. Xinjiang enjoys ample sunlight and heat, supporting boll formation, but persistent high temperatures and low rainfall in southern Xinjiang raise irrigation stress and the risk of boll shedding. Hebei and Shandong report normal growth; Hunan has stable acreage and good conditions; Hubei faces potential acreage reduction.
In summary, reserve auctions have eased near-term supply concerns and capped upside for cotton prices. Meanwhile, robust restocking demand provides a floor. Prices are expected to remain range-bound in the near term. Key watchpoints include Xinjiang weather, US export data, and trade policy developments.