The first-week trading data of the central reserve cotton release injected strong confidence into the domestic cotton market during the off-season. With 40,100 tons offered and a 100% transaction rate, the premium far exceeded expectations, signaling that textile mills' demand for high-quality cotton is more urgent than financial reports suggest. However, the divergence between domestic and international cotton prices—narrow fluctuations at home versus a strong rebound abroad—widened the price gap, prompting a reassessment of supply chain strategies.
Behind the Premium: Supply-Demand Reality
The reserve cotton sales, launched on July 20, achieved a full transaction rate in the first week, with an average price of 17,404 yuan/ton, slightly below the national cotton price B index of 17,610 yuan/ton. The premium reflected market recognition of reserve cotton quality, primarily imported varieties, which directly filled the gap for high-grade cotton and reduced some import demand. Despite the traditional off-season, spinning mills in Zhejiang maintained high operating rates, supported by resilient export orders.
On the supply side, Xinjiang cotton regions have sufficient sunlight and heat accumulation, favoring boll formation, but persistent high temperatures and low rainfall in southern Xinjiang increase irrigation pressure and the risk of boll shedding. Inland producing areas like Hubei and Hunan show stable or slightly reduced acreage, while Hebei and Shandong are on par with last year. The release of reserve cotton serves as a crucial buffer before the new crop arrives.
Widening Price Gap: Import Cotton Advantage
Domestic and international cotton prices moved in opposite directions this week. Zhengzhou cotton futures averaged 15,980 yuan/ton, down 0.5% week-on-week, while ICE cotton futures averaged 80.59 cents/lb, up 0.3%. More notably, the import cotton index (M), converted to yuan, stood at 14,618 yuan/ton, nearly 3,000 yuan lower than the domestic B index, widening the price gap by 95 yuan/ton week-on-week.
This cost advantage is shifting mills' procurement strategies. For export-oriented spinners, using imported cotton reduces costs and avoids certain trade barriers. However, recent US tariffs of 12.5% on Chinese goods under Section 301 and tighter EU e-commerce regulations could indirectly impact the competitiveness of cotton textile exports.
Downstream Transmission: Yarn Price Divergence and Restocking Signals
Domestic cotton yarn prices remained stable, with C32S combed yarn averaging 23,318 yuan/ton, narrowing the gap with imported yarn to 348 yuan/ton. Polyester staple fiber prices edged up to 7,584 yuan/ton, weakening the substitution effect. As the traditional peak season approaches, mills' restocking intentions are strengthening, driving high transaction rates in reserve sales.
June textile and apparel exports reached $29.271 billion, the highest monthly figure in 2025, up 7.2% year-on-year. Among 41 listed textile companies, 23 expect net profit growth in the first half, with 12 seeing over 100% growth. These positive signals support cotton prices at the bottom. However, geopolitical tensions in the Middle East have reduced oil tanker traffic through the Strait of Hormuz by 1.2 million barrels per day, pushing up shipping costs and pressuring global supply chains.