The price gap between domestic and international cotton narrowed sharply by 547 yuan/ton to 1743 yuan/ton this week, reflecting a tug-of-war between weather-driven gains overseas and policy-related pressure at home. For textile enterprises, this is not just a price fluctuation but a real challenge in procurement timing and cost control.
Market Background
Persistent drought in US cotton regions, coupled with rising El Nino expectations, drove NY futures up 3.67% on August 27 to 92.75 cents/lb, the highest since April 2024. The weekly average settlement price rose 3.2% to 90.02 cents/lb, while the international cotton index (M) inched up 4.3% to 16407 yuan/ton on a 1% tariff basis. Meanwhile, China's Zhengzhou futures inched up only 0.7% to an average of 17033 yuan/ton, and after hitting 17345 yuan/ton on August 28, prices retreated amid fierce long-short battles.
The divergence in price movements narrowed the gap, reducing the cost advantage of imported cotton. For mills relying on foreign cotton, this signals a shift in procurement windows—higher import costs may drive some orders toward domestic cotton.
Industry Impact
The weather story on the supply side is not over. USDA data shows US cotton good-to-excellent ratings fell for the fifth consecutive week to 37%, with drought-affected areas rising from 44% to 52%. Texas drought is expected to persist. More worrying, the probability of a 'very strong' El Nino in the Northern Hemisphere autumn/winter has exceeded 90%, and India's monsoon rainfall may hit a 2009 low, adding to global supply uncertainty.
Domestically, Xinjiang cotton is entering the boll-opening stage, with machine-picked fields reaching 40-50% opening, suggesting an earlier new crop arrival. Reserve cotton sales continue to see 100% transaction rates, with cumulative sales exceeding 240,000 tons, easing the tight supply situation. However, downstream demand has not warmed correspondingly: textile industry profits growth slowed sharply from 16.6% in January-June to 7.9% in January-July, while apparel profits, though improving, remain in contraction at -17.2%. Chemical fiber profits surged 107.7% year-on-year, highlighting a clear divergence in the industrial chain and poor cost transmission.
On the macro front, the US threat of an additional 7.5% tariff on Chinese goods looms, with current combined tariffs on Chinese textile and apparel exports to the US already at 20-37.5%. If implemented, it would further suppress end demand. Fed Chair Warsh's hawkish signals have raised rate hike expectations, tightening financial conditions and pressuring commodities.