The spread between domestic and international cotton prices narrowed by 547 yuan per ton within a week to 1,743 yuan per ton, reflecting a clash between a strong weather-driven supply narrative abroad and weak consumption reality at home. When New York futures surged 3.67% in a single session to 92.75 cents per pound—the highest since April 2024—Zhengzhou futures only managed a pullback after an initial spike. Behind this muted response are the combined pressures of reserve sales, upcoming new crop arrivals, and squeezed downstream profits. For textile mills, this spread shift is not just a number; it directly impacts raw material costs and order quotations.
Background
The rally in international cotton prices stems primarily from weather anomalies in Northern Hemisphere growing regions. USDA data showed US cotton condition ratings fell to 37% as of August 23, marking a fifth consecutive weekly decline, with drought-affected area expanding from 44% to 52%. Texas drought is expected to persist for another month. Meanwhile, the probability of a "very strong" El Nino event in autumn/winter has risen above 90%, and the India Meteorological Department warns monsoon rainfall could be 15% below average, the lowest since 2009. These supply-side factors, combined with a weaker dollar, pushed the NY futures average settlement to 90.02 cents per pound, up 3.2% week-on-week.
The domestic market response was notably restrained. Zhengzhou cotton futures averaged 17,033 yuan per ton, up only 0.7%, despite a brief spike to 17,345 on August 28 before fading. The China Cotton Price Index (B) averaged 18,150 yuan per ton, also up just 0.7%. Consequently, the domestic-international spread narrowed from 2,290 to 1,743 yuan per ton, a five-month low. This "strong outside, weak inside" pattern reflects cautious sentiment toward production cuts—Xinjiang cotton bolls are opening faster, with some machine-picked fields reaching 40-50%, suggesting earlier-than-usual new crop supply.
Industry Impact
The extreme divergence in profit across the textile chain is key to understanding current price dynamics. National Bureau of Statistics data show industrial profits rose 17.6% year-on-year in Jan-Jul, but textile industry profit growth slowed sharply to 7.9% from 16.6% in Jan-Jun. Apparel profits remained in contraction, narrowing from -28.0% to -17.2%, while chemical fiber profits surged 107.7%. This "barbell" profit structure—strong upstream, weak downstream—means cost pass-through is severely blocked. When cotton price increases cannot be transferred to yarn and fabric prices, mills' purchasing appetite naturally weakens: domestic C32S combed yarn rose only 0.1% on average, while imported yarn rose 0.7%, reversing the spread to 46 yuan per ton in favor of imports.
Reserve sales and new crop arrivals are setting a clear ceiling. By August 28, cumulative reserve sales exceeded 240,000 tons, with 100% turnover this week, indicating tight spot supply but also ongoing market replenishment. Brazilian harvest progress reached 70.5%, 10.2 percentage points ahead of last year, while Indian imports surged 175% year-on-year to 96,000 tons in June, cumulatively exceeding USDA forecasts. These factors prevent domestic prices from matching international gains despite production concerns.