China's cotton market is experiencing a supply-demand tug-of-war driven by weather and state reserves. As of August 10, spot prices for 3128B grade cotton rose to 17,952 yuan per ton, a weekly gain of 2.93%, one of the sharpest weekly jumps in recent months. Behind this surge lie two converging forces: extreme heat in Xinjiang's core cotton regions and fully-subscribed state reserve auctions with rising premiums. Meanwhile, downstream textile mills are seeing their margins squeezed, intensifying the contradiction across the supply chain.
Background
Xinjiang's cotton is in the critical stage from full bloom to boll enlargement, where field management directly determines annual yield. From August 3 to 6, major producing areas including Turpan, Hami, and southern Bayingolin experienced persistent extreme heat, with temperatures exceeding 40°C and locally surpassing 45°C—coinciding precisely with the pollination and boll-setting window. The heat accelerates water evaporation, weakens pollination, and raises the probability of flower and boll shedding, fueling market expectations of reduced new-crop output and underpinning price gains.
In parallel, state reserve cotton auctions showed a fervent pattern of full subscription and high premiums. 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 transaction 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 120,259.425 tons, with an average price of 17,173.33 yuan per ton (17,801.48 yuan for 3128B), and zero failed auctions. The high premiums and full subscription reflect tight spot supplies and stable just-in-time demand.
Industry Impact
The strong upstream raw material market contrasts sharply with weak downstream demand. Terminal orders for apparel and home textiles remain sluggish, prompting traders and fabric mills to procure cautiously. Yarn enterprises focus on destocking, maintaining stable prices with only small upward adjustments, primarily for medium-count carded, combed, and compact yarns. The core contradiction lies in cotton price gains far outpacing yarn price increases, narrowing the spread and compressing spinning margins, which heightens operational pressure.
With shrinking profits, mills resist high-priced new cotton, adopt a wait-and-see attitude toward spot point-price purchases, and control raw material restocking volumes. To offset costs, many small and medium-sized mills turn to state reserve auctions, leveraging price advantages to lower overall cotton costs, making reserves a key cost-reduction tool. However, this structural shift does not alter the overall weak demand, limiting profit improvement.
In the short term, bullish factors dominate: persistent heat threatens new-crop output, and high reserve premiums reflect tight spot supply, supporting price strength. Yet downstream demand weakness remains unresolved, and mill profit pressure and cautious procurement will continue to cap upside. The industry is likely to maintain a divergence of strong raw materials and weak finished goods.