The first week of central reserve cotton sales starting July 20 saw 40,100 tons fully transacted at an average price of 17,404 yuan/ton, with notable premiums. The auction reflects textile mills hedging against supply tightness before the new crop arrives. However, domestic cotton prices did not surge; the Zhengzhou cotton futures main contract averaged 15,980 yuan/ton, down 0.5% week-on-week.
Widening Domestic-Import Price Gap Strengthens Import Substitution Logic
International cotton prices moved independently. ICE cotton futures averaged 80.59 cents/lb, up 0.3% week-on-week, supported by three factors: rising global agricultural commodity prices, a 49% week-on-week surge in US cotton export commitments to 11,600 tons for the week of July 10-16, and Brazil's daily cotton exports in the first three weeks of July jumping 32% compared to the full-month daily average of July last year.
The divergence widened the price gap. The international cotton index (M) averaged 88.45 cents/lb, translating to an import cost of 14,618 yuan/ton, while domestic standard-grade cotton averaged 17,610 yuan/ton. The gap reached 2,992 yuan/ton, up 3.3% from the previous week. For spinners, imported cotton is nearly 3,000 yuan/ton cheaper than domestic, tilting the procurement balance toward imports. The reserve auction, mainly featuring imported cotton, is precisely addressing this demand gap.
Macro Trade Headwinds: US Tariffs and EU Regulatory Squeeze
On July 23, the US Trade Representative announced 10%-12.5% tariffs on 60 countries under Section 301, with China facing the highest rate of 12.5%. Days earlier, the European Commission fined AliExpress €550 million under the Digital Services Act, targeting cross-border e-commerce small parcel models. The dual impact on textile and apparel exports is clear: tariffs raise export costs directly, while tighter e-commerce regulation could compress small parcel channels for footwear and apparel.
Shipping risks add another layer. Morgan Stanley reports that daily Very Large Crude Carrier transits through the Strait of Hormuz have dropped from 8 to 2 since late June, cutting crude oil shipments by about 12 million barrels. High oil prices and shipping costs continue to pressure logistics for textile exports.
Regional Production Variables: Xinjiang Heat as Key Uncertainty
Domestic cotton production shows regional divergence. Hebei and Shandong have normal growth, Hunan is stable with good growth, but Hubei faces acreage reduction. Most of Xinjiang enjoys ample sunlight and heat, benefiting boll formation and weight, but sustained high temperatures and low rainfall in southern Xinjiang have increased local irrigation pressure. The current boll formation stage is critical; heat-induced shedding could directly impact yields.
In the textile market, Zhejiang spinning mills maintain high operating rates, with export orders and profitability significantly outperforming domestic sales. As the golden September and silver October approach, mills are increasingly restocking—evidenced by the first week's 100% auction rate. However, the off-season persists, limiting upward price momentum.
Near-Term Outlook: Narrow Range, Awaiting Weather and Demand Catalysts
The reserve auction acts as a short-term stabilizer: increasing supply and capping price gains, while premium bids provide a floor. Prices are expected to remain relatively stable in the near term, with two key variables: whether Xinjiang's heat evolves into a material yield reduction, and whether orders pick up as expected in September-October.