When the stabilizing effect of central reserve cotton releases collided with a geopolitical premium in the same week, domestic cotton prices completed another narrow consolidation with an amplitude of less than 1%. As of July 31, the main Zhengzhou cotton futures contract settled at an average of 15,833 yuan/ton, down 0.9% week-on-week; the China Cotton Index B fell 0.6% to 17,511 yuan/ton. Meanwhile, ICE cotton futures averaged 80.68 US cents/lb, up 0.1%, and the China-import price spread narrowed by 128 yuan/ton, a 4.3% decline. This divergence between domestic stability and external strength is reshaping procurement rhythms and profit distribution across the supply chain.
Event Background The continued release of reserve cotton is the core variable in the domestic market this week. As of July 31, cumulative reserve sales reached 80,193.944 tons, providing mills with a stable supplementary supply and directly offsetting tightness in the spot market. Meanwhile, domestic cotton yarn prices were stable domestically but higher for imports—C32S combed yarn averaged 23,328 yuan/ton, up 10 yuan; imported yarn averaged 23,095 yuan/ton, up 0.5%, leaving a 233 yuan/ton inversion that still favors imports but with a shrinking advantage. Polyester staple fiber fell 77 yuan to 7,507 yuan/ton, reducing its substitution appeal.
International drivers are more complex. Escalating US-Iran conflict pushed oil prices higher, with Brent briefly exceeding $91/barrel, raising chemical fiber costs and indirectly supporting cotton prices. US cotton export sales jumped to 79,900 tons in the week ending July 23, signaling stronger demand. However, fundamentals are not uniformly bullish: US crop condition ratings fell to 46% good-to-excellent, down 9 percentage points year-on-year; India's planting lagged 4%, with area potentially below 13 million hectares. These factors underpin the firmer external market.
Industry Impact Geopolitical conflict and trade policy are reshaping the industry's transmission chain. On July 31, the US added 43 Chinese firms to the UFLPA entity list, including major cotton textile mills like Septwolves, Weiqiao, and Tongzhou Cotton, restricting their exports to the US. This poses compliance risks for export-dependent firms but may also accelerate supply chain shifts to Southeast Asia or Central Asia. Domestically, demand remains weak—July manufacturing PMI fell to 49.2%, and consumer goods PMI dropped to 47.8%, pressuring domestic volumes and margins.
Notably, export orders are outperforming domestic sales. Spinning mills in Xinjiang and Jiangsu-Zhejiang maintain high operating rates, but inventory buildup in Nantong and Foshan indicates weak domestic demand. Strong export demand supports imported and high-grade domestic cotton, keeping spot basis firm. Additionally, stricter tax audits on e-commerce, live-streaming, and cross-border operations are pressuring online sales channels, prompting some firms to pivot to traditional wholesale or general trade.