Domestic and international cotton prices rose in tandem this week, but a more telling figure is the widening spread: Chinese cotton now costs 2,507 RMB/ton more than imported cotton, up 46 RMB from the prior week. This growing premium highlights the cost advantage of imported fiber and makes procurement timing a critical lever for mills' second-half cost structure. The divergence stems from different supply expectations—Xinjiang drought concerns versus a global inventory drawdown—yet these forces transmit to prices with varying intensity.
Supply: Weather and USDA Report Bolster, but Sustainability Questioned
The USDA August report cut global ending stocks to 15.19 million tons, down 1.11 million year-on-year, and reduced US production by about 20,000 tons due to a lower yield forecast of 798 lbs/acre. In response, NY futures touched 85.25 cents/lb, the highest since May 14. Superficially, tightening supply underpins international prices, but a deeper look reveals that US crop conditions have deteriorated—good-to-excellent ratings fell to 40% versus 53% a year ago, and Texas drought persists during the critical boll-setting stage. These factors reinforce a tight supply narrative, yet southern hemisphere shipments are accelerating: Brazil's harvest reached 28.4% (75% in some states), and Australian exports surged nearly 200% month-on-month in June. The northern hemisphere's weather disruptions are being offset by southern supply, so the upside momentum may be overstated.
Domestically, Xinjiang's high temperatures and drought have sparked production-cut expectations, while the main futures contract shifted to January delivery, refocusing trading on new-crop pricing. Zhengzhou futures rose 2.3% week-on-week to 16,336 RMB/ton. However, reserve sales continue—cumulative listings reached 160,320 tons by August 14, with a 100% transaction rate and higher average prices. This suggests the government is smoothing prices, but the market seems more eager to trade the production-cut narrative. Xinjiang's boll opening may advance, with some mills in southern Xinjiang planning to start purchasing by late August to early September, potentially adding supply pressure after September.
Demand: Sporadic Recovery Masks Overall Weakness
Downstream data send mixed signals: national cotton industrial inventories rose 3.8% month-on-month in early August, mill operating rates recovered to 80.6%, and yarn sales-to-production ratios improved, but fabric sales-to-production ratios declined. This implies yarn mills are destocking, but fabric orders have not followed, indicating an incomplete demand transmission chain. Surveys in Hubei, Anhui, and Guangdong show autumn/winter orders are gradually landing, and spinning mills are accelerating yarn inventory reduction, fueling expectations for the 'golden September and silver October.' Yet fabric mills remain cautious, suggesting limited actual order growth.
On the macro front, China's July CPI rose 0.5% year-on-year, with core CPI up 0.9%; the central bank reaffirmed a moderately loose monetary policy, supporting financing conditions for textile enterprises. Meanwhile, US July retail sales fell 0.6% month-on-month, the largest drop since May 2025, and consumer confidence slipped to 51.0, with nonfarm payrolls down 23,000, cooling Fed rate-hike expectations. External demand risks are mounting, potentially pressuring export orders.
Widening Spread and Procurement Strategy
The domestic-international price gap has widened to 2,507 RMB/ton, driven by stronger domestic gains. For mills using imported cotton, the landed cost of imports is about 15,382 RMB/ton (at 1% tariff), significantly lower than the domestic B-index, making foreign fiber increasingly attractive. However, imported yarn prices rose 0.9% versus 0.3% for domestic yarn, with regular imported yarn now 108 RMB/ton cheaper, enhancing import competitiveness.
Over the next one to two months, supply uncertainties will dominate: northern hemisphere weather, strong US export commitments (new-crop net sales of 205,000 tons in the first week, up 273% week-on-week), and southern hemisphere shipment pace. Domestic new-crop purchase prices and yield expectations will gradually clarify, while reserve sales remain a key variable.