In the first week of August, domestic cotton spot prices surged 2.93% to 17,952 yuan per ton for grade 3128B. The rally is not driven by demand recovery but by two supply-side pressures: extreme heat in Xinjiang threatening new-crop yields, and tight spot availability reflected in fully-subscribed state reserve auctions.
Background
From August 3 to 6, core cotton-growing areas in Xinjiang, including Turpan, Hami, and southern Bazhou, experienced persistent extreme heat, with temperatures exceeding 40°C and local peaks above 45°C. This coincided with the critical boll-setting stage, accelerating evaporation, weakening pollination, and raising the risk of boll shedding. Market participants reacted strongly, with production-cut expectations quickly building, providing fundamental support for the price uptrend.
Meanwhile, state reserve cotton auctions saw overwhelming demand. In the week of August 3-7, all 40,100 tons offered were fully subscribed, maintaining a 100% transaction rate. The average weekly price was 17,014 yuan/ton, equivalent to 17,663 yuan/ton for grade 3128B, with an average premium of 1,497 yuan per ton. As of August 7, cumulative reserve sales reached 120,259.425 tons with zero unsold lots, at an average price of 17,173.33 yuan/ton. The high premiums and full subscription indicate tight spot supply and steady just-in-time demand from downstream mills.
Industry Impact
The strong raw material market contrasts sharply with the weak downstream textile season. End-use orders for apparel and home textiles remain sluggish, traders and weavers are cautious, and yarn mills focus on destocking, keeping prices stable with only minor upward adjustments. The biggest contradiction is that cotton price gains far outpace yarn price increases, narrowing the spread and compressing spinning margins. Consequently, mills resist high-priced new cotton, adopt a wait-and-see attitude in spot purchasing, and control raw material replenishment.
To offset high raw material costs, many small and medium-sized mills have shifted procurement toward state reserve cotton, which offers a cost advantage over market cotton. This 'reserve-for-spot' strategy helps lower overall cotton costs and has become a key risk-hedging tool. However, it also fuels further premium increases in reserve auctions.
In the short term, bullish factors dominate: persistent heat in Xinjiang threatens new-crop output, and high reserve premiums reflect tight spot supply. Yet downstream demand weakness cannot be quickly repaired, and mills' margin pressure and cautious buying will cap price upside. The industry is likely to maintain a 'strong raw materials, weak finished goods' divergence, with risks of price transmission failure accumulating.