The narrowing of the domestic-international cotton price gap by 547 yuan per ton to 1,743 yuan per ton in one week deserves more attention than the price level itself. It signals that the ceiling for domestic cotton prices is being pressed by reserve sales and the upcoming new crop, while overseas weather speculation has pushed international prices to a two-year high. For textile mills, the divergence in raw material costs is reshaping procurement strategies and inventory management.
Weather and Policy: Can the Rally Sustain?
NY futures surged 3.67% on August 27 to 92.75 US cents per pound, the highest since April 2024. The drivers are concentrated: US cotton good-to-excellent ratings fell for a fifth consecutive week to 37%, drought-affected acreage rose from 44% to 52%, and the probability of a very strong El Nino event in the Northern Hemisphere autumn/winter exceeded 90%. A weaker US dollar also supported the rally.
However, concerns remain. Brazil's harvest reached 70.5%, 10.2 percentage points ahead of last year, and India's June imports surged 175% year-on-year to 96,000 tons. While this supports international demand in the short term, it also indicates global supply is rebalancing. For domestic buyers, higher import costs—now at 16,407 yuan per ton, up 679 yuan—squeeze margins for mills using foreign cotton.
Domestic Prices Lag, Profit Divergence Widens
Domestic cotton prices averaged 17,033 yuan per ton, up only 0.7% week-on-week, significantly lagging the 3.2% rise in international prices. The Zhengzhou futures contract hit a high of 17,345 yuan but retreated, reflecting a tug-of-war between production cut expectations and policy measures. The China Cotton Index (B) averaged 18,150 yuan, with the gap narrowing to 1,743 yuan, a direct indicator for import substitution.
More striking is the profit divergence across the textile chain. National Bureau of Statistics data show chemical fiber profits surged 107.7% year-on-year in the first seven months, while textile profits slowed to 7.9% from 16.6%, and apparel profits remained in contraction at -17.2%. This 'strong upstream, weak downstream' pattern means cost pass-through remains difficult, and slow consumer recovery continues to constrain profitability. Polyester staple fiber prices rose 85 yuan to 7,849 yuan per ton, further pressuring blend mills.
Reserve Sales and New Crop: Supply Pressure Looms
Reserve cotton sales achieved 100% turnover this week, with cumulative sales exceeding 240,000 tons by August 28, easing the tight supply situation. Meanwhile, Xinjiang cotton has entered the boll-opening stage, with 40-50% of machine-picked fields already open, and the new crop is expected to arrive earlier than usual. This adds a supply buffer before the peak demand season, limiting upside price potential.
Downstream orders are diverging, with cautious sentiment prevailing. A survey at the Shanghai Yarn Expo (August 25-27) indicated conditions improved from last month but remain far below spring levels. Some mills worry that a delayed peak season will compress the effective sales window, creating uncertainty in order release. Persistent profit pressure further curbs raw material purchases, leading to a 'higher prices, weaker transactions' stalemate.
Macro Uncertainties Loom
The US is considering an additional 7.5% tariff on Chinese goods, which would raise combined tariffs on Chinese textile and apparel exports to 20-37.5%, further eroding competitiveness. Fed Chairman Warsh signaled a hawkish stance, emphasizing the 2% inflation target as 'firm and fixed', raising rate hike expectations and tightening financial conditions, which pressures commodity prices. Domestic industrial profits grew 17.6%, but textile growth slowed, reflecting headwinds from both exports and domestic demand.
In the short term, international cotton prices may remain firm due to weather disruptions, but risks of a pullback from easing weather concerns and profit-taking exist. Domestic prices are likely to fluctuate at high levels, supported by production cut concerns and peak season expectations, but capped by reserve sales and new crop supply.