The domestic-international cotton price gap narrowed by 547 yuan in a single week to 1,743 yuan per ton, reflecting a clash between weather premium and industrial constraints. On August 27, the New York cotton futures main contract surged 3.67% to 92.75 cents/lb, the highest since April 2024, while Zhengzhou cotton hit 17,345 yuan/ton but quickly retreated, with the weekly average up only 0.7%. This divergence suggests that expectations of tighter global supply have not effectively transmitted to domestic demand, and the acceptance of high cotton prices is diverging along the supply chain.
Background
The rally was primarily supply-driven. USDA data showed U.S. cotton good-to-excellent ratings fell to 37% by August 23, down for the fifth consecutive week, with drought-affected areas rising from 44% to 52%. Combined with over 90% probability of a "very strong" El Niño in autumn/winter and India's monsoon rainfall potentially 15% below normal, the market has formed strong expectations of reduced Northern Hemisphere output.
Meanwhile, Southern Hemisphere supply is accelerating. Brazil's cotton 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, pushing cumulative imports to 1.079 million tons, exceeding USDA forecasts. The simultaneous tightening in the North and loosening in the South implies that while the weather premium may persist short-term, upside is constrained by supplementary supplies from South America and India.
Industry Impact
The limited rise in domestic prices stems from structural demand issues. National Bureau of Statistics data show textile industry profits grew 7.9% in January-July, down sharply from 16.6% in the first half; garment profits remained negative at -17.2%, while chemical fiber profits surged 107.7%. This profit distribution heavily favors raw materials, indicating poor cost transmission downstream, with spinners' purchasing willingness suppressed by high prices and weak orders.
Reserve sales have further cooled the market. As of August 28, cumulative reserve sales exceeded 240,000 tons, with 100% turnover last week, effectively easing supply tightness. Combined with earlier-than-usual Xinjiang cotton boll opening and harvest, new supply pressure looms in September. For downstream mills, high cotton price volatility complicates cost locking; order-taking requires careful balancing of exchange rates and tariff risks—the U.S. may impose additional 7.5% tariffs, with current comprehensive tariffs on Chinese textile exports already at 20%-37.5%.