Cotton spot prices are experiencing a rare weekly surge: as of August 10, the domestic standard 3128B grade lint cotton was quoted at 17,952 yuan/ton, up 2.93% in just one week. Behind this jump lies a combination of extreme heat in Xinjiang and high premiums in state reserve cotton auctions, pushing raw material prices to a temporary high. Meanwhile, the downstream yarn market remains mired in the off-season, with spinner margins being squeezed continuously. The divergence between raw materials and finished goods is reallocating profits across the supply chain.
Event Background
Xinjiang cotton regions are currently in the critical growth phase from full bloom to boll expansion, a golden window that determines annual yield and total output. From August 3 to 6, core planting areas such as Turpan, Hami, and southern Bazhou experienced persistent extreme heat, with temperatures exceeding 40°C across the region and local extremes surpassing 45°C. The heat coincided exactly with the boll-setting period, accelerating water evaporation, weakening pollination, and significantly increasing the probability of flower and boll shedding. Market participants widely fear that the heat will suppress new cotton yields, intensifying expectations of tighter future supply and providing fundamental support for price increases.
Concurrently, the state reserve cotton auction market is seeing a "supply shortage" scenario. During the week of August 3-7, 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. Over a longer period, as of August 7, cumulative reserve cotton transactions reached 120,259.425 tons, with an average price of 17,173.33 yuan/ton (equivalent to 17,801.48 yuan/ton for 3128B), maintaining a zero-failure rate throughout. The high premiums and full transactions reflect tight spot supply and stable downstream restocking demand.
Industry Impact
The strength in raw materials contrasts sharply with downstream weakness. Terminal orders for apparel and home textiles are sluggish, traders and weavers are cautious, and yarn mills prioritize clearing finished goods inventory. Pricing remains stable, with only minor upward adjustments to attract modest restocking. The biggest contradiction is that cotton price increases far outpace yarn price hikes, narrowing the spread and compressing spinning margins. Under pressure, mills resist high-priced new cotton, adopt a wait-and-see attitude toward spot purchases, and actively control raw material restocking volumes.
To offset high raw material costs, many small and medium-sized spinning mills are shifting their procurement structure toward state reserve cotton auctions. Compared with market-circulated domestic cotton, reserve cotton offers cost advantages, helping mills reduce overall cotton costs and serving as a primary risk-hedging tool. This behavior, in turn, further drives up auction premiums, creating a short-term cycle of "tightness fuels competition, competition fuels tightness."
From a supply-demand perspective, short-term bullish logic still dominates: persistent heat threatens new cotton output, and expectations of reduced production are hard to dissipate quickly; high premiums in reserve auctions reflect tight spot supply, supporting spot price strength. However, downstream textile demand weakness cannot be repaired in the short term, and mills' profit pressure and cautious purchasing will continue to cap upside potential. The industry is expected to maintain a "strong raw materials, weak finished goods" divergence until new cotton arrives or demand sees a substantive recovery.