On August 10, the domestic spot price for standard 3128B grade cotton settled at 17,952 yuan per ton, up 2.93% from the previous week. This surge reflects the combined impact of extreme heat in Xinjiang's core cotton belt and fully-subscribed reserve cotton auctions with high premiums. The contrast between strong raw material prices and a sluggish downstream textile market is intensifying profit distribution imbalances across the supply chain.
Heat Wave Threatens New Crop Yield
From August 3 to 6, major cotton-growing areas in Xinjiang, including Turpan, Hami, and southern Bayingolin, experienced persistent extreme heat, with temperatures exceeding 40°C and local peaks above 45°C. This period coincides with the critical flowering and boll-setting stage, and the heat accelerates soil moisture evaporation, weakens pollination, and raises the probability of flower and boll shedding. The market reacted swiftly, with production cut expectations strengthening and providing fundamental support for higher cotton prices.
It is worth noting that the impact of heat damage is not immediate but rather affects yield and thus total supply in the coming months. For textile mills, this implies higher-than-expected raw material costs, especially for those relying on Xinjiang cotton, and they should assess cost volatility risks in advance.
Reserve Cotton Auctions Reflect Spot Tightness
Adding to the supply concerns, the reserve cotton auction market saw robust activity. During the week of August 3-7, 40,100 tons of reserve cotton were offered and fully sold, a 100% transaction rate, with an average price of 17,014 yuan per ton, equivalent to 17,663 yuan per ton for 3128B grade, and an average premium of 1,497 yuan per ton. Since the start of the current round, cumulative transactions reached 120,259.425 tons by August 7, with a full transaction rate and an average price of 17,173.33 yuan per ton, equivalent to 17,801.48 yuan per ton for 3128B grade.
The high premiums and zero unsold lots directly confirm tight spot supply. For small and medium-sized mills, reserve cotton offers clear cost advantages, and bulk purchases can effectively reduce overall cotton costs, making it a primary hedging tool. However, if the pace of reserve releases slows or prices rise, mills' cost pressure will intensify.
Downstream Off-Season Limits Upside
In contrast to the strong raw material market, downstream textile demand remains weak. Orders for apparel and home textiles are sluggish, traders and fabric mills are cautious, and yarn mills focus on destocking, with only slight price adjustments. Regular yarns such as medium-count carded, combed, and compact spun are the main movers, but overall demand lacks momentum.
The biggest contradiction is that cotton price gains far outpace yarn price increases, narrowing the spread and squeezing spinning margins. As profits shrink, mills resist high-priced new cotton, adopt a wait-and-see attitude in spot purchasing, and control restocking volumes. This "strong raw materials, weak finished goods" pattern is unlikely to change in the short term, capping further upside for cotton prices.