In the first week of August, the domestic spot price for standard 3128B grade cotton climbed to 17,952 yuan per ton, a weekly increase of 2.93%. This rise was not driven by demand recovery but by a combination of heat-related output fears and high premiums in reserve cotton auctions. The sharp contrast between strong raw material prices and weak finished goods is reshaping profit distribution across the cotton-textile chain.
Background
Xinjiang cotton is entering the critical boll-setting and expansion stage, when field management directly determines annual yields. From August 3 to 6, core cotton-growing areas including Turpan, Hami, and southern Bazhou experienced continuous extreme heat, with temperatures exceeding 40°C and local peaks above 45°C. This heat wave coincided exactly with the boll-setting window, accelerating water evaporation, impairing pollination, and significantly raising the probability of boll shedding. Market fears of reduced output quickly translated into higher prices, with supply tightening expectations providing fundamental support.
Meanwhile, reserve cotton auctions presented a picture of "insufficient supply and full clearance." During the week of August 3-7, the 40,100 tons offered were all sold, achieving a 100% clearance 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 cotton sales reached 120,259.425 tons with zero unsold lots, and the average cumulative price was 17,173.33 yuan per ton. The coexistence of high premiums and zero unsold lots indicates tight spot supply and stable just-in-time restocking demand from downstream mills.
Industry Impact
The strong upstream momentum has not transmitted downstream. The textile market remains in its off-season, with weak orders for apparel and home textiles, and cautious purchasing by traders and weaving mills. Most yarn mills prioritize clearing finished goods inventory, keeping prices stable with only minor upward adjustments, focusing on mid-count carded, combed, and compact yarns. Cotton price increases have far exceeded yarn price hikes, narrowing the upstream-downstream spread and squeezing spinning margins.
With shrinking profits, mills resist high-priced new cotton, adopting a wait-and-see attitude toward spot point-price purchases and actively controlling restocking volumes. To offset high raw material costs, many small and medium-sized spinning mills have shifted procurement toward reserve cotton, which offers a cost advantage over market cotton. Large-volume reserve purchases effectively lower overall cotton costs, becoming a key risk-hedging tool. This behavior, in turn, pushes reserve premiums higher, creating a short-term cycle of "higher prices lead to more buying, more buying leads to higher prices."
The core contradiction lies in the mismatch between cost-push inflation and weak demand. Heat-related supply fears support raw material prices, but insufficient downstream orders limit yarn price increases, squeezing mills from both sides. In the short term, ongoing heat in Xinjiang will keep output concerns alive, and high reserve premiums reflect tight spot supply, supporting cotton prices. However, the demand shortfall cannot be quickly fixed, and current profit pressure and cautious purchasing will cap further upside, likely maintaining the "strong raw materials, weak finished goods" pattern.