In the first week of August, the domestic cotton spot market experienced a rare unilateral rally. As of August 10, standard 3128B grade lint cotton was quoted at 17,952 yuan/ton, up 2.93% week-on-week. Behind this figure, extreme heat in Xinjiang and high premiums in state reserve cotton auctions combined to push raw material sentiment to a yearly high. However, downstream did not follow suit, squeezing spinning margins and triggering a rebalancing between cost and orders.
Heat Disrupts New Crop Yield Expectations
Xinjiang cotton has entered the critical boll-setting and expansion phase, where field management directly determines yield. From August 3 to 6, core planting areas including Turpan, Hami, and southern Bazhou suffered persistent extreme heat, with temperatures exceeding 40°C and locally surpassing 45°C. The heat coincided with the boll-setting window, accelerating water evaporation, weakening pollination, and increasing the probability of boll shedding. Market participants reacted sensitively, with yield-cut expectations heating up and providing fundamental support for cotton prices.
Notably, this weather impact is not a one-off shock but continuously affects market psychology. As long as heat warnings remain, new crop yield expectations cannot be repaired, and risk premiums in futures and spot markets will persist. For textile enterprises relying on forward price locking, this means significantly increased raw material cost uncertainty, raising the necessity of hedging operations.
Reserve Cotton Auctions Reflect Supply-Demand Tension
Equally striking as the heat was the full-capacity auction of state reserve cotton. From August 3 to 7, 40,100 tons were listed, all transacted with a 100% transaction rate; the average transaction price was 17,014 yuan/ton, equivalent to 17,663 yuan/ton for 3128B grade, with a premium of 1,497 yuan/ton. As of August 7, cumulative transactions reached 120,259.425 tons with zero failed auctions, and an average price of 17,173.33 yuan/ton.
Behind the high premium and zero failed auctions is the coexistence of tight spot supply and stable downstream restocking demand. On one hand, local cotton circulation is limited, making reserve cotton the most cost-effective supplement; on the other hand, small and medium spinning mills actively adjust procurement structures to hedge against high raw material prices, using reserve cotton as a primary cost-reduction tool. This 'grabbing' behavior in turn reinforces the perception of tight supply, forming a self-reinforcing price spiral.
Widening Profit Divergence Between Upstream and Downstream
In stark contrast to the strong raw material side, the downstream textile market shows clear off-season characteristics. Terminal clothing and home textile orders are weak, and traders and weavers are cautious in procurement. Yarn enterprises prioritize destocking, keeping prices stable with only minor upward adjustments, with shipments concentrated in regular medium-count carded, combed, and compact yarns.
The core contradiction lies in cotton price increases far exceeding yarn price hikes, narrowing the upstream-downstream spread and eroding spinning profits. Under profit pressure, mills resist high-priced new cotton, adopt a wait-and-see attitude in spot point-price purchases, and actively control raw material restocking volumes. This 'strong raw materials, weak finished goods' pattern is unlikely to change in the short term—as long as heat-related yield-cut expectations persist and reserve cotton premiums remain high, raw materials lack downward momentum; and without substantial terminal demand recovery, finished product prices will struggle to break higher.