In the first week of central reserve cotton auctions, all 40,100 tons were sold at premiums, with an average price of RMB 17,404/ton. This signals that mills' restocking demand is stronger than seasonal norms suggest, driven by concerns over tight supply ahead of the new crop. The reserve sales, primarily consisting of imported cotton, are actively narrowing the domestic-international price spread and capping import price gains.
The Widening Price Spread: Supply and Demand Dynamics
Domestic Zhengzhou cotton futures averaged RMB 15,980/ton, down 0.5% week-on-week, while ICE cotton averaged 80.59 cents/lb, up 0.3%. The spread between domestic and imported cotton has widened to around RMB 3,000/ton. The main driver is stronger US export data—USDA reported net sales of 11,600 tons for the week ending July 16, up 49% from the prior week—combined with rising commodity prices and shipping costs due to Middle East tensions.
For Chinese mills, this spread makes imported cotton increasingly cost-attractive. However, the reserve sales, which are mostly imported cotton, partially substitute direct imports. This kept the international cotton index (M) down 0.87 cents/lb for the week. Once reserve sales end, imported cotton prices may see a catch-up rally.
Production Zone Divergence: Xinjiang Heat vs. Coastal Mill Activity
Monitoring data shows cotton growth in Hebei and Shandong is on par with last year, while Hunan's planted area is stable but Hubei faces a reduction. Xinjiang has ample heat and accumulated temperature, benefiting boll development, but persistent high temperatures and low rainfall in southern Xinjiang have increased local irrigation pressure, raising concerns about boll shedding.
Downstream, mills in Zhejiang are operating at high capacity, with export orders and profitability significantly outperforming domestic sales. June textile and apparel exports reached USD 29.27 billion, the highest monthly figure of 2025, up 7.2% year-on-year. Among 41 A-share listed textile companies, 23 reported profit growth, with 12 seeing gains over 100%. However, the US imposing 10%-12.5% tariffs on 60 countries and the EU fining AliExpress EUR 550 million under the DSA are clouding the Q4 export outlook.
Near-Term Price Outlook: Floor in Place, Ceiling Capped
The 100% clearance rate and premium bidding in the first week confirm genuine restocking demand as the peak season approaches. This provides a solid floor for cotton prices. However, continued reserve sales increase supply and cap upside. Zhengzhou cotton is expected to trade in a RMB 15,800-16,200/ton range, while ICE cotton may fluctuate between 78-84 cents/lb, influenced by export data and macro sentiment.