The price gap between domestic and imported cotton widened further this week, with local spot prices approaching 17,600 yuan per tonne while landed cost of foreign cotton fell below 14,200 yuan, creating a spread of over 3,400 yuan. Behind this divergence lies a convergence of supply contraction expectations and weather risks that is reshaping the pricing logic for the second half of the year.
Supply Side: Production Cuts and Inventory Drawdown
On the domestic front, the Zhengzhou Cotton Futures main contract settled at an average of 16,099 yuan per tonne, up 230 yuan or 1.4% week-on-week. The National Cotton Price B Index rose to 17,643 yuan per tonne, up 166 yuan. The primary driver is Xinjiang, China's largest cotton-producing region, where production cut expectations are moving from speculation to data validation. Commercial inventory drawdown further confirms a tightening spot market, with textile mills showing increased restocking appetite.
Internationally, the New York ICE cotton main contract averaged 77.05 US cents per pound, down 0.50 cent or 0.6%. The International Cotton Index M averaged 85.26 cents, with Chinese port landed cost at 14,115 yuan per tonne. The widening spread means domestic mills could benefit from using imported cotton, but this has not curbed the domestic price rally.
Weather: Heat and Drought Test Key Growing Regions
China's main cotton belt is entering a critical growth phase. Xinjiang cotton has generally entered early flowering, with development near normal pace. However, the Central Meteorological Observatory forecasts sustained high temperatures of 37-43°C across northwest and north-central China during the first week of July. The duration of heat stress, water availability, and extreme weather events will be the key variables determining final yields. Some areas in southern Xinjiang have already experienced episodic heat, increasing evapotranspiration and field management difficulty, though irrigation and precision management have prevented widespread damage.
Overseas, the Indian Meteorological Department expects July monsoon rainfall to be below normal, and Reuters reports that India's cotton planting area has fallen 35% year-on-year. In the US, the USDA's Acreage Report shows 2026 planted area at 9.85 million acres, up 6% year-on-year, but drought conditions have eased, supporting yield prospects. Brazil's new crop harvest is progressing smoothly, with exports in the first 14 working days of June reaching 146,800 tonnes, up 10.6% year-on-year.
Demand: Policy and Trade Headwinds
The EU has imposed fixed tariffs on cross-border parcels under €150 from July 1, and its Ecodesign for Sustainable Products Regulation (ESPR), which bans destruction of unsold clothing, takes effect July 19. These policies are expected to raise end-consumer costs and dampen textile and apparel demand. Southeast Asian textile exports have already slumped: Bangladesh's May exports were $440 million, down 90% month-on-month and year-on-year; Cambodia's exports were $180 million, down nearly 90%; Vietnam's April exports were $3.72 billion, down 9% month-on-month and 4% year-on-year. Chinese textile exporters should watch for order diversion slowdown and demand contraction.
Domestically, macro conditions are more supportive. June manufacturing PMI stood at 50.3%, up 0.3 percentage points and back in expansion territory. Industrial profits above designated size grew 18.8% year-on-year. In foreign trade, textile and leather products ranked among the top three sectors for overseas exhibition participation, indicating resilient export activity.