On August 10, domestic spot cotton for Grade 3128B closed at 17,952 yuan per ton, up 2.93% from the previous week. This surge reflects two converging forces: extreme heat in Xinjiang threatening new-crop yields, and fully-subscribed reserve cotton auctions indicating tight spot supply. Yet downstream yarn markets remain mired in off-season weakness, squeezing spinner margins and highlighting a clear divergence between raw materials and finished goods.
Heat-Driven Supply Concerns
From August 3 to 6, major cotton-growing regions in Xinjiang—including Turpan, Hami, and southern Bazhou—experienced extreme heat, with temperatures exceeding 40°C and local peaks above 45°C. This coincided with the critical flowering-to-boll-setting stage, accelerating water evaporation, weakening pollination, and raising the probability of flower and boll shedding. Market participants quickly priced in potential yield losses, providing fundamental support for higher cotton prices.
However, the full impact on yields will only be quantified at harvest in September. The early pricing means that even if weather improves, the supply-reduction expectation will not dissipate quickly. For spinners, this shortens the procurement window and raises the cost of waiting.
Reserve Cotton Premium: A Clear Sign of Tight Supply
During the week of August 3-7, 40,100 tons of reserve cotton were offered and fully sold, with a 100% transaction rate. The average price was 17,014 yuan per ton, equivalent to 17,663 yuan per ton for Grade 3128B, with an average premium of 1,497 yuan per ton. Cumulatively, as of August 7, 120,259 tons had been sold through auctions, maintaining a full transaction rate and an average price of 17,173 yuan per ton. Zero failed auctions and high premiums clearly indicate tight spot supply and steady downstream restocking demand.
The cost advantage of reserve cotton is reshaping procurement structures. Compared with market-available local cotton, reserve cotton offers lower prices, enabling bulk purchases to reduce overall cotton costs. For small and medium-sized spinning mills, this is not only a cost-control measure but also a hedging tool against rising raw material prices. As long as spot cotton remains elevated, reserve auction participation is likely to stay strong.
Profit Squeeze in the Middle: Spinners' Dilemma
In stark contrast to upstream strength, downstream textile markets remain in off-season. Apparel and home textile orders are weak, traders and weavers are cautious, and yarn mills focus on destocking. Product pricing is stable, with only minor upward adjustments. Main sales remain concentrated in regular yarns such as medium-count carded, combed, and compact-spun, limiting pricing power.
The core contradiction is that cotton price increases far outpace yarn price hikes, narrowing the spread and eroding spinning profits. Under this pressure, mills resist high-priced new cotton, adopt a wait-and-see attitude toward spot purchases, and control restocking volumes. This pattern of strong raw materials and weak finished goods is unlikely to break in the short term, as heat-driven supply concerns and reserve premiums support cotton, while weak demand caps yarn prices.
Short-Term Outlook and Risks
In the near term, bullish factors remain dominant: persistent heat threatens new-crop output, and high premiums in reserve auctions reflect tight supply. However, downstream demand weakness cannot be repaired quickly, and mills' profit pressure and cautious buying will limit further upside. Cotton prices are expected to fluctuate at high levels, with limited room in both directions.
Key risks include a potential weather reversal—cooler temperatures or rainfall could trigger a correction in supply-reduction expectations. Additionally, changes in reserve release volumes could ease spot tightness. Mills should closely monitor these factors and adjust procurement strategies flexibly.