In the first week of August, China's domestic cotton spot market staged a striking independent rally: 3128B-grade cotton jumped 2.93% in a single week to 17,952 yuan/ton. Meanwhile, reserve cotton auctions were fully subscribed for five consecutive days, with an average premium of 1,497 yuan/ton. The exuberance at the raw material end contrasts sharply with the off-season chill in downstream textiles, signaling a dramatic rebalancing of profit distribution across the chain.
Background
The direct trigger for the price surge was extreme heat in Xinjiang's core cotton-growing areas. From August 3 to 6, temperatures exceeded 40°C in Turpan, Hami, and southern Bayingolin, with local extremes above 45°C, coinciding with the critical flowering-to-boll-setting stage. Accelerated water evaporation and weakened pollination raised the probability of boll shedding, quickly converting concerns about new-crop yields into synchronized gains in futures and spot prices.
More telling was the signal from reserve cotton releases. The 40,100 tons offered during the week were fully sold, maintaining a 100% transaction rate, with an average price of 17,014 yuan/ton (equivalent to 17,663 yuan/ton for 3128B grade). By August 7, cumulative reserve sales reached 120,259 tons with zero failed auctions. The high premiums and full subscription directly confirm tight spot supply—buyers would not pay such premiums if the market were well supplied.
Industry Impact
The strong rally at the raw material end has not effectively transmitted to the yarn segment. Terminal orders for apparel and home textiles remain weak, traders and weavers are cautious, and yarn mills focus on destocking and stable pricing, with only tentative increases for mid-count carded and combed varieties. This has squeezed spinning margins, narrowing the spread between upstream and downstream to multi-year lows.
Mill responses are diverging: large enterprises rely on low-cost inventory from earlier purchases, while small and medium mills accelerate procurement restructuring, using reserve cotton as a primary cost-reduction tool. The price advantage of reserve cotton over market cotton makes it a key hedge for smaller players. However, if reserve release slows or premiums rise further, cost pressure on SMEs will intensify.
In the short term, the impact of Xinjiang heat is not fully priced, and yield-reduction expectations are unlikely to dissipate quickly. High premiums for reserve cotton also support spot prices. But downstream demand weakness cannot be repaired overnight, and cautious purchasing will cap upside. The chain will likely maintain a pattern of strong raw materials and weak finished goods until new cotton arrives or demand genuinely improves.