The domestic-international cotton price gap narrowed by 547 yuan/ton to 1,743 yuan/ton in a single week, reflecting a direct clash between global weather narratives and domestic consumption realities. NY futures hit a new high since April 2024, while Zhengzhou cotton struggled around the 17,000 yuan mark, showing limited upside. For textile mills, the rupture in cost transmission is widening.
Background
US cotton good-to-excellent ratings fell for the fifth consecutive week to 37%, drought-affected areas rose from 44% to 52%, and the probability of a very strong El Nino in autumn/winter exceeded 90%. These supply-side factors drove ICE cotton up 3.67% on August 27 to 92.75 cents/lb. The international cotton index (M) rose to 16,407 yuan/ton (import cost), up 4.3% week-on-week.
Domestically, Zhengzhou cotton's weekly average settlement price was 17,033 yuan/ton, up only 0.7%, notably weaker than overseas. Xinjiang cotton bolls opened earlier, with 40-50% of machine-picked fields at 40-50% open boll, adding supply pressure. Reserve sales maintained 100% turnover, with cumulative sales exceeding 240,000 tons, easing the tight supply.
Industry Impact
The narrowing price gap enhances the competitiveness of imported cotton, benefiting foreign-trade enterprises with quotas, but domestic spinning margins remain squeezed. National Bureau of Statistics data show textile industry profits grew 7.9% year-on-year in Jan-Jul, down sharply from 16.6% in Jan-Jun; apparel profits contracted 17.2%, though improving from -28.0%.
Profit divergence is stark: chemical fiber profits surged 107.7%, while apparel remains in contraction, highlighting structural cost transmission issues. This is mirrored in yarn markets: domestic C32S yarn rose only 0.1%, while imported yarn rose 0.7%, turning the price spread positive at 46 yuan/ton.
Macro headwinds include potential US tariffs of an additional 7.5% on Chinese goods, which would raise combined rates to 27.5-45% for textiles, threatening order demand. Fed Chair Warsh's hawkish tone strengthened rate hike expectations, tightening financial conditions and pressuring commodities.