When the US-Iran conflict spilled over to the Strait of Hormuz, pushing Brent crude above $91 per barrel, the pricing logic of the cotton market was quietly rewritten—higher chemical fiber costs, soaring shipping premiums, and a reconfiguring trade chain all left their mark on this week's price movements. Domestic Zhengzhou cotton futures averaged 15,833 yuan/ton, down 0.9% week-on-week, while ICE cotton futures rose 0.1% to 80.68 cents/lb. The domestic-import spread narrowed by 128 yuan/ton, a 4.3% drop, further eroding the cost advantage of imported cotton.
Geopolitical Premium and Supply-Demand Game
The transmission path of higher oil prices is clear: polyester staple fiber fell 77 yuan/ton to 7,507 yuan/ton, weakening its substitution advantage and reinforcing cotton's demand resilience. But the flip side of geopolitical risk is escalating trade barriers—on July 31, the US Department of Homeland Security added 43 Chinese companies to the UFLPA entity list, including well-known cotton textile mills such as Septwolves, Weiqiao, and Tongzhou Cotton. This further narrows export channels to the US and raises compliance costs, making it not just a logistics issue but a survival rule for mills reliant on US cotton orders.
Meanwhile, cracks in global supply are widening. Brazil exported 128,000 tons of cotton in the first four weeks of July, with daily exports surging 28% year-on-year, becoming the biggest variable in the international market. US cotton commitments jumped to 79,900 tons in the week ending July 23, signaling a significant rebound in trading activity. However, US cotton crop conditions fell 9 percentage points year-on-year to 46% good-to-excellent, while India's planting pace lagged 4%, with actual area possibly falling below the 13 million hectare forecast. The "see-saw" among major Northern Hemisphere producers keeps global supply-demand in a tight balance, where any weather or policy disturbance could trigger sharp price swings.
Domestic Spot Market: Temperature Differences and Structural Divergence
China's cotton market shows a pattern of "weak futures, firm cash." Reserve cotton cumulative sales reached 80,193.944 tons, continuing to inject stability into the market, with futures prices edging down. But spot basis remains strong, especially for high-grade and imported cotton, which are in short supply. The reason lies in active export orders downstream: mills in Nantong (Jiangsu) and Foshan (Guangdong) maintain high operating rates, despite rising finished goods inventories, but profitability is significantly better than domestic sales. The domestic market suffers from weak demand and fierce competition, squeezing margins to the point where some enterprises face losses on every order.
More concerning is the persistent drought in Xinjiang's cotton regions, with increasing irrigation pressure on local fields. Combined with the National Meteorological Center's warning of a potential super El Niño—possibly the strongest in 150 years—the uncertainty over new crop output and quality is rising. Meanwhile, tax audits on e-commerce, live-streaming, and cross-border businesses have intensified, raising compliance costs for online sales channels. This may force some enterprises to adjust their sales structure and re-examine the balance between domestic and export markets.
Price Outlook and Operational Strategies
In summary, international cotton prices are likely to remain firm in the short term, supported by geopolitical premiums and tight supply-demand dynamics. Domestic prices are expected to stay relatively stable due to reserve sales and weak demand. However, the narrowing domestic-import spread and rising import costs may prompt some mills to shift toward domestic cotton or chemical fibers, further tightening the supply-demand balance for high-grade domestic cotton. For buyers, firm basis means higher costs for locking in forward supplies, and they should be wary of the gap period before new crop harvest.