On August 10, the domestic spot price for 3128B-grade cotton settled at 17,952 yuan per ton, up 2.93% from a week earlier. Behind this number lies a double whammy of extreme heat in Xinjiang and fully-subscribed reserve auctions, which pushed raw material sentiment higher while the downstream textile sector remained in a sluggish off-season. Profit is now shifting rapidly toward cotton growers and traders.
Heat-Driven Yield Fears Fuel Spot Rally
From August 3 to 6, major cotton zones in Xinjiang—including Turpan, Hami, and southern Bayingolin—experienced persistent extreme heat, with temperatures exceeding 40°C and local peaks above 45°C. This coincided with the critical flowering and boll-setting stage, accelerating water evaporation, weakening pollination, and raising the probability of boll shedding. Market participants quickly translated this weather event into yield-reduction expectations, driving spot prices higher throughout the week.
Notably, this heatwave is not an isolated incident. In recent years, extreme summer weather has become more frequent in Xinjiang's cotton belt, making yield volatility a key price driver. For buyers, this means traditional area-based production forecasts need to incorporate more weather variables, increasing the difficulty of pricing forward contracts.
Zero-Failure Reserve Auctions: A Signal of Tight Supply
Data from the national reserve cotton auctions are even more telling. During the week of August 3–7, all 40,100 tons offered were sold, a 100% transaction rate, with an average price of 17,014 yuan per ton (equivalent to 17,663 yuan for 3128B grade) and an average premium of 1,497 yuan per ton. As of August 7, cumulative sales reached 120,259 tons, with zero failed auctions and an average price of 17,173 yuan per ton (equivalent to 17,801 yuan for 3128B).
High premiums and zero failures point to two facts: first, market supply is genuinely tight, with steady restocking demand; second, reserve cotton offers a clear cost advantage and has become an important tool for small and medium spinners to hedge costs. However, if reserve release slows, spot prices could gain further support, narrowing buyers' bargaining room.
Spinners' Margins Squeezed, Procurement Strategies Diverge
In stark contrast to the strong raw material market, downstream orders remain weak, with sluggish demand for apparel and home textiles, prompting cautious buying by traders and fabric mills. Most yarn mills prioritize destocking, keeping prices stable with only minor upward adjustments, focusing on conventional yarns like medium-count carded, combed, and compact.
The biggest contradiction is that raw material price increases far outpace yarn price hikes, compressing the spread and eroding spinning margins. Under profit pressure, mills resist high-priced new cotton, adopt a wait-and-see attitude toward spot purchases, and actively control restocking volumes. Meanwhile, many small and medium spinners have shifted procurement structures, actively participating in reserve auctions—bulk purchases of reserve cotton effectively lower overall cotton costs and serve as a primary risk-hedging tool.
This divergence—cautious in the spot market but active in reserve auctions—may temporarily tighten spot liquidity and further support prices, creating a self-reinforcing loop. Procurement managers should not only watch spot prices but also track reserve release schedules and auction premiums as leading indicators of short-term supply-demand balance.
Short-Term Outlook: Divergence to Persist, Risks and Opportunities Coexist
Overall, near-term bullish factors dominate: Xinjiang's heat threatens new-crop yields, and expectations of reduced output are unlikely to dissipate quickly; high premiums in reserve auctions reflect tight spot supply, supporting prices. However, downstream demand weakness cannot be repaired in the short term, and spinners' profit pressure and cautious buying will continue to cap upside. The industry is likely to maintain a pattern of 'strong raw materials, weak finished goods.'
For exporters, high cotton prices will raise product costs. If the yuan exchange rate or freight rates fluctuate, profit margins may narrow further. It is advisable to build more flexibility into export contract pricing and consider price-linkage mechanisms with clients to avoid one-way erosion of margins.