On August 10, the domestic standard 3128B grade cotton spot price settled at 17,952 yuan/ton, up 2.93% from the previous week. This figure results from the combination of persistent extreme heat in Xinjiang and high-premium reserve cotton auctions. However, what deserves more industry attention is that yarn prices only inched up slightly during the same week, widening the gap between raw materials and finished goods.
Background
Xinjiang cotton is in the critical period from full bloom to boll enlargement, which directly determines annual yield. From August 3 to 6, core planting areas including Turpan, Hami, and southern Bayingolin experienced persistent extreme heat, with temperatures exceeding 40°C and local peaks above 45°C. This heat wave coincided exactly with the boll-setting window, accelerating water evaporation, weakening pollination, and significantly increasing the probability of flower and boll shedding. Market participants quickly grew concerned about reduced yields, providing fundamental support for higher cotton prices.
Meanwhile, reserve cotton auctions showed an unusual imbalance between supply and demand. During the week of August 3-7, 40,100 tons of reserve cotton were offered, all sold, with a 100% transaction rate. The average transaction price was 17,014 yuan/ton, equivalent to 17,663 yuan/ton for 3128B grade, with an average premium of 1,497 yuan per ton. As of August 7, cumulative reserve cotton sales reached 120,259.425 tons, with zero unsold lots and an average price of 17,173.33 yuan/ton. High premiums and zero failed auctions indicate tight spot supply and stable downstream demand for restocking.
Industry Impact
The strength in raw materials contrasts sharply with weak downstream conditions. Terminal orders for apparel and home textiles are lackluster, traders and weaving mills remain cautious, and yarn mills focus on clearing finished goods inventory. Pricing is stable, with only slight upward adjustments. Main sales are concentrated in regular yarns such as medium-count carded, combed, and compact spun.
The biggest contradiction in the chain is that cotton price increases far exceed yarn price hikes, narrowing the spread and squeezing spinning margins. As profits shrink, mills resist expensive new cotton, adopt a wait-and-see attitude toward spot purchases, and control raw material restocking. To hedge costs, many small and medium mills turn to reserve cotton auctions, which offer better value than local market cotton, helping lower overall usage costs and serving as a primary risk-aversion tool.
In the short term, bullish factors dominate: the heat threat in Xinjiang persists, reducing yield expectations; high reserve cotton premiums reflect tight supply, supporting prices. However, weak downstream demand cannot be quickly repaired, and mills' squeezed profits and cautious purchasing will cap upside potential. The chain is likely to maintain a divergence pattern of strong raw materials and weak finished goods. For buyers, this means more refined balance between price risk and inventory costs; for mills, profit recovery depends on terminal order rebound and product mix adjustment.