Cotton prices rose both domestically and internationally this week, but the divergence in gains reveals deeper market contradictions: China's Zhengzhou futures average gained 2.3% while New York futures rose only 1.3%, widening the China premium to RMB 2,507 per ton. This underscores a tug-of-war between supply concerns from Xinjiang's heatwave and persistent demand weakness, compounded by a shift to new-crop pricing. For textile mills, the pressure of rising costs against tepid orders demands more refined procurement strategies.
Supply Tightens: Weather and USDA Report Align
Abnormal weather across Northern Hemisphere cotton belts is becoming a core supply variable. As of August 9, U.S. cotton condition ratings dropped to 40% good/excellent, 13 percentage points below last year, with Texas drought threatening boll-setting fields. The USDA August report raised harvested acreage but cut yields to 798 lbs/acre, trimming U.S. output by about 20,000 tons. Globally, ending stocks fell by 330,000 tons month-on-month to 15.19 million tons, down 1.11 million tons year-on-year, reinforcing expectations of tighter supply.
Xinjiang's drought is equally concerning. Persistent heat and irrigation shortages may accelerate boll opening, with some hand-picked ginneries in southern Xinjiang planning to start purchasing in late August or early September. This could bring new cotton to market earlier, but output risks are mounting. For inland mills reliant on Xinjiang cotton, procurement cost uncertainty has risen significantly, making early resource locking more critical than ever.
Demand Remains Weak: Macro and Micro Signals
In contrast to supply tightness, demand lacks substantial recovery. U.S. July retail sales fell 0.6% month-on-month, the largest drop since May 2025, and consumer sentiment plunged to 51.0. Domestically, July CPI rose only 0.5% year-on-year, down 0.5 percentage points from June, with core CPI at 0.9%, indicating sluggish internal demand. These macro weaknesses transmit down the textile chain: the national monitoring system shows mill operating rates rebounded to 80.6% in early August, but fabric sales ratios declined both sequentially and annually, signaling weak final orders.
Imported yarn strengthened more than domestic yarn—C32S carded yarn import prices rose 0.9% weekly versus 0.3% for domestic—making imported yarn RMB 108/ton cheaper. This price inversion intensifies competition, especially with weak domestic demand, compressing domestic yarn pricing power. Polyester staple fiber rose RMB 66 to RMB 7,534/ton, potentially nudging substitution away from cotton.
Policy and Geopolitics: Liquidity Easing Amid Uncertainty
Policy provides some support. The central bank's Q2 monetary policy report reaffirmed a moderately loose stance, sustaining ample liquidity, which aids financing for cotton industry players. However, geopolitical risks loom: U.S.-Iran tensions over the Strait of Hormuz persist, with an August 18 negotiation deadline approaching. Any escalation could roil commodity risk appetite and spur cotton price volatility.
Reserve cotton sales continue at high clearance, with cumulative sales reaching 160,320 tons through August 14, and this week's average price ticked up. The steady release of reserves supplements supply but caps domestic price gains, keeping Zhengzhou cotton rangebound.
Price Outlook: Short-Term Strength, Mid-Term Pressure
International cotton prices are likely to remain firm in the short term, supported by weather and USDA data. Domestically, prices may consolidate as new crop output remains uncertain and demand is slow to recover. However, as the Northern Hemisphere harvest approaches, supply fears could be corrected by actual production data, weakening support. For textile firms, procurement decisions now must balance short-term costs against medium-term risks.