In the first week of August, the domestic spot price for standard 3128B grade cotton settled at 17,952 yuan/ton, up 2.93% in a single week. Behind this figure lies a convergence of persistent extreme heat in Xinjiang and zero-failure, high-premium auctions of state reserve cotton. While the raw material market surges, downstream textile demand remains weak in the off-season, shifting profits from spinning mills to upstream growers and traders.
Event Background
Xinjiang cotton is in the critical growth stage from full flowering to boll enlargement, where field management directly determines annual yield. From August 3 to 6, core planting areas including Turpan, Hami, and southern Bayingolin experienced sustained extreme heat, with temperatures exceeding 40°C and local peaks above 45°C. The heat wave coincided exactly with the boll-setting window, accelerating water evaporation, weakening pollination, and raising the probability of flower and boll drop. Market participants widely fear reduced yields, intensifying expectations of tighter future supply and providing fundamental support for cotton prices.
Meanwhile, the reserve cotton auction market showed a "supply-shortage" pattern. From August 3 to 7, 40,100 tons of reserve cotton were listed and fully sold, with a 100% transaction rate. The average transaction price was 17,014 yuan/ton, equivalent to 17,663 yuan/ton for grade 3128B, with an average premium of 1,497 yuan per ton. By August 7, cumulative reserve sales reached 120,259.425 tons, maintaining full clearance throughout, with an average price of 17,173.33 yuan/ton (17,801.48 yuan/ton for 3128B). High premiums and zero failures reflect tight spot supply and stable just-in-time demand from downstream mills.
Industry Impact
The divergence between raw material and finished product trends is the most prominent contradiction in the supply chain. Terminal orders for apparel and home textiles remain weak, prompting weaving mills and traders to adopt cautious purchasing. Yarn enterprises prioritize inventory digestion, keeping prices stable with only minor upward adjustments. Mainstream products include medium-count carded, combed, and compact yarns. However, cotton price increases far outpace yarn price hikes, narrowing the spread and squeezing spinning profits.
With shrinking margins, mills resist high-priced new cotton, adopting a wait-and-see attitude toward spot point-price purchases and controlling restocking volumes. To offset cost pressures, many small and medium-sized mills have shifted to participating in reserve cotton auctions. Reserve cotton offers a cost advantage over local market cotton, enabling bulk purchases to lower overall raw material costs, making it a primary cost-reduction and risk-hedging tool. This behavior, in turn, drives up reserve auction premiums, creating a short-term positive feedback loop.
In the near term, bullish factors dominate the cotton market: persistent heat in Xinjiang sustains yield-reduction expectations, and high premiums in reserve auctions reflect tight spot supply, supporting price strength. However, downstream demand weakness cannot be repaired quickly, and mills' profit pressure and cautious purchasing will cap upside potential. The industry is likely to maintain a "strong raw materials, weak finished goods" divergence, with spinning profit recovery awaiting order rebound or price correction.