When cotton fields in Xinjiang faced relentless heat above 40°C and state reserve auctions saw zero unsold lots with hefty premiums, spot cotton prices jumped 2.93% in a single week, reaching 17,952 yuan per ton for grade 3128B by August 10. Yet downstream yarn markets remained sluggish, with price hikes repeatedly blocked. The narrowing spread between raw materials and finished goods is squeezing spinners' margins from both ends—perhaps the most alarming signal in this year's cotton-textile chain.
Background
The convergence of extreme weather and policy reserves underpins the current rally. From August 3 to 6, persistent extreme heat hit core cotton areas in Turpan, Hami, and southern Bayingolin, with local maximums exceeding 45°C, coinciding with the critical flowering and boll-setting stage. Heat accelerated water evaporation, weakened pollination, and raised the probability of boll shedding, fueling concerns about lower yields and strengthening the market's supply-reduction narrative.
Meanwhile, state reserve cotton auctions showed unusual tightness. 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). The premium per ton reached 1,497 yuan. As of August 7, cumulative reserve sales hit 120,259.425 tons, all transacted, with an average price of 17,173.33 yuan per ton. High premiums and zero unsold lots indicate tight spot supply and steady downstream restocking demand.
Industry Impact
The stark contrast between strong raw materials and weak finished goods has created a clear profit scissors. Terminal orders for apparel and home textiles remain soft, traders and weavers are cautious, and yarn mills focus on destocking. Pricing is stable with only minor upward tests. Mainstream products like medium-count carded, combed, and compact yarns are selling, but their price increases lag far behind cotton.
This means spinning margins are further compressed, intensifying operational pressure. To offset costs, many small and medium mills have turned to state reserve auctions, leveraging their cost advantage. But this is not a long-term solution—reserve resources are finite, and high premiums themselves raise future costs. Mills' reluctance to buy expensive new cotton will continue to cap price upside in the near term.
From a chain perspective, the narrowing cotton-yarn spread is forcing mills to shift toward high-count, differentiated, and value-added products. The profit trough in conventional items is unsustainable, which partly explains why some producers are increasing output of compact and combed yarns.