Cotton spot prices are experiencing a rare weekly surge: on August 10, domestic 3128B grade cotton was quoted at 17,952 yuan per ton, up 2.93% from the previous week. The strong raw material market contrasts sharply with weak downstream textile demand, as extreme weather and policy reserve tools reshape profit distribution across the chain.
Background
Extreme heat is the direct trigger. From August 3 to 6, temperatures in core Xinjiang cotton areas such as Turpan, Hami, and southern Bazhou exceeded 40°C, with local peaks above 45°C, coinciding with the critical flowering and boll-setting stage. Accelerated water evaporation and weakened pollination raise the risk of flower and boll shedding, fueling market concerns over lower yields and tighter future supply.
Meanwhile, state reserve cotton auctions remain highly competitive. In the week of August 3-7, 40,100 tons 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 3128B grade, with an average premium of 1,497 yuan per ton. As of August 7, cumulative reserve sales reached 120,259 tons with zero failed auctions, at an average price of 17,173 yuan per ton. High premiums and full clearance indicate tight spot supply and genuine downstream restocking demand.
Industry Impact
The divergence between raw material and finished product prices is the most prominent contradiction. Terminal clothing and home textile orders are weak, weavers and traders are cautious, and yarn mills focus on destocking with only slight price adjustments. Yarn sales concentrate on conventional mid-count carded, combed, and compact yarns. Cotton rose nearly 3% in a week, far outpacing yarn price increases, squeezing spinning margins and increasing operational pressure.
This margin squeeze has changed mills' purchasing behavior. Many resist high-priced new cotton, adopting a wait-and-see attitude and controlling restocking volumes. Instead, they actively participate in reserve auctions to lower overall cotton costs, using state reserves as a cost-reduction tool. This strategy supports reserve premiums in the short term but also reflects resistance to high spot prices.
From a transmission perspective, bullish factors for raw materials remain dominant: the heat threat persists, and reserve premiums confirm spot tightness. However, weak downstream demand and compressed mill margins will cap upside. The market is likely to maintain a polarized pattern of strong raw materials and weak finished goods, with cotton prices oscillating at high levels.