On August 10, domestic 3128B grade cotton spot prices settled at 17,952 yuan per ton, up 2.93% week-on-week. Behind this figure lies a supply-side convergence of extreme heat in Xinjiang and high-premium reserve cotton auctions—but downstream yarn prices have risen far less, creating a rapid profit scissors in the industry chain.
Supply Side: Dual Squeeze from Heat and Reserve Releases
Xinjiang cotton is in the critical boll-setting stage, and from August 3 to 6, core producing areas including Turpan, Hami, and southern Bazhou experienced sustained temperatures above 40°C, with local extremes exceeding 45°C. The heat window coincided exactly with the boll-setting period, increasing the probability of flower and boll shedding, and market concerns about lower yields quickly reflected in prices. This is not mere sentiment—the yield-determining window lasts only a few weeks, and even optimal field management cannot fully offset extreme weather damage.
Another support came from reserve cotton auctions. During the week of August 3-7, 40,100 tons were listed and fully sold, with a 100% transaction rate, an average price of 17,014 yuan/ton, and a converted 3128B grade price of 17,663 yuan/ton, representing a premium of 1,497 yuan per ton. Cumulatively through August 7, 120,259.425 tons were transacted with zero failed auctions, at an average price of 17,173.33 yuan/ton. Such high premiums and full clearance directly indicate tight spot supply, forcing downstream mills to seek relief from policy reserves.
Chain Divergence: Strong Upstream vs. Weak Downstream
In contrast to the hot raw material market, terminal apparel and home textile orders remain weak in the off-season. Traders and fabric mills are cautious, yarn mills focus on destocking, and prices are only tentatively raised, with shipments concentrated in conventional middle-count carded, combed, and compact yarns. The key contradiction is that cotton price gains far exceed yarn price increases, narrowing the spread and squeezing spinning profits.
Shrinking profits have changed mill purchasing behavior. For new cotton, spot point-price purchases are generally put on hold, with active control of replenishment volumes. In contrast, small and medium mills actively participate in reserve auctions because reserve cotton offers a clear cost advantage over market-distributed local cotton, effectively lowering overall fiber costs. This structural shift from spot to reserve is a rational risk-averse choice, but it also reflects a lack of confidence in sustained price strength.
Short-Term Outlook: Bullish but Limited Upside
In the near term, bullish factors still dominate: the heat threat in Xinjiang persists, and output reduction expectations are hard to quickly falsify; high premiums in reserve auctions confirm spot tightness and support spot prices. However, downstream textile demand weakness cannot be repaired quickly, and mills' profit pressure and cautious purchasing will continue to cap upside. In the coming weeks, watch for whether extreme weather persists, whether reserve release pace adjusts, and whether yarn prices can catch up—if yarn fails to follow, the risk of a pullback after a rally increases.