As reserve cotton sales surpassed 80,000 tons, Zhengzhou cotton futures hovered around 15,800 yuan per ton, indicating that policy support has not significantly heated up sentiment. Heatwaves, geopolitical tensions, and compliance pressures are pushing the cotton market into a phase of divergent domestic and international trends with a tight supply-demand balance.
Supply Side: Heat and Planting Progress as Key Variables
Persistent drought in Xinjiang is increasing irrigation pressure on cotton fields, while the national meteorological agency warns of a possible super El Nino, potentially the strongest in 150 years. This raises risks of high temperatures, drought, and heavy rainfall, with significant implications for cotton yields. Meanwhile, US cotton good-to-excellent ratings fell to 46%, down 9 percentage points year-on-year, and India's planting progress lagged 4% behind last year, with actual area potentially below the 13 million hectare forecast. Synchronized weather or area disruptions across the three major Northern Hemisphere producers are quietly lowering global supply expectations.
Brazil's export data offers another confirmation: cotton exports reached 128,000 tons in the first four weeks of July, with daily average exports up 28% year-on-year, showing active international demand. US cotton commitments surged to 79,900 tons in the week ending July 23, indicating a marked recovery in trading. Supply uncertainties and demand resilience together support the firm international price trend.
Demand Side: Exports Outperform Domestic, Price Transmission Fault Lines
Domestic terminal demand remains weak, with July manufacturing PMI falling to 49.2% and consumer goods manufacturing PMI at 47.8%, both below the boom-bust line. This macro backdrop is directly reflected in the cotton textile chain: finished goods inventory accumulation is increasing at mills in Nantong (Jiangsu) and Foshan (Guangdong), and domestic market competition is fierce with thin margins. In contrast, export orders and profitability significantly outperform domestic sales, supporting strong demand for imported and high-grade domestic cotton, keeping spot basis firm.
Price data further confirms this divergence: domestic C32S combed yarn averaged 23,328 yuan/ton, up only 10 yuan from the previous week, essentially flat; imported C32S combed yarn rose 125 yuan to 23,095 yuan/ton, narrowing the gap to 233 yuan. Polyester staple fiber fell 77 yuan to 7,507 yuan/ton, easing substitution pressure. The domestic-import cotton price gap narrowed by 128 yuan/ton, down 4.3%, reducing the cost advantage of imported cotton, but structural shortages of high-grade cotton still support basis.
Geopolitics and Policy: Risk Premium Reshapes Trade Patterns
The US-Iran conflict escalation pushed international oil prices up, with Brent crude briefly exceeding $91 per barrel, directly raising chemical fiber costs and indirectly supporting international cotton prices. Shipping security risks in the Red Sea and Mandeb Strait persist, and Hormuz Strait transit efficiency has not fully recovered, keeping freight and war risk insurance premiums high, deeply affecting trade normalization. This geopolitical risk premium is reshaping global cotton trade flows and pricing logic.
Domestically, reserve cotton sales continue to inject stability, with cumulative listings reaching 80,193.944 tons, effectively easing mill demand. The Politburo meeting emphasized stronger counter-cyclical adjustments and expanding domestic demand, raising expectations for macroeconomic repair in H2. However, on July 31, the US Department of Homeland Security added 43 Chinese companies to the UFLPA entity list, including well-known cotton textile mills like Septwolves, Weiqiao, and Tongzhou Cotton, sharply raising export compliance risks and potentially disturbing future export orders.
Price Outlook and Operational Strategies
In summary, the international market is expected to maintain an active demand environment with a firmer price trend, supported by strong Brazilian exports, recovering US commitments, slow Indian planting, and lower US crop conditions. The domestic market is likely to remain relatively stable, supported by reserve sales and high mill operating rates. However, the narrowing price gap and stronger exports relative to domestic demand require more refined procurement strategies.