Domestic and international cotton prices are diverging sharply. Zhengzhou Commodity Exchange's main cotton futures contract settled at 16,099 yuan/ton, up 230 yuan or 1.4% from the previous week, driven by expectations of lower output in Xinjiang and declining commercial inventories. In contrast, New York ICE cotton futures averaged 77.05 cents/lb, down 0.50 cent or 0.6%, weighed down by macro headwinds. The widening spread makes imported cotton more attractive—at 14,115 yuan/ton under a 1% tariff, it is over 3,500 yuan cheaper than domestic spot prices.
Supply: Xinjiang Heatwave and Global Weather Risks
Xinjiang's cotton belt is facing extreme heat, with the Central Meteorological Observatory forecasting temperatures of 37-43°C in early July during the critical blooming and boll-setting stage. While irrigation and management have prevented widespread damage so far, the duration of the heatwave will be the key variable for final yields. The expectation of a Xinjiang output cut is the main driver behind domestic price strength.
Other major producers also face challenges. India's Meteorological Department forecasts below-normal monsoon rainfall in July, and Reuters reports that Indian cotton acreage has fallen 35% year-on-year. This could significantly shrink output from the world's second-largest producer. The USDA's June 30 acreage report shows US planted area at 9.85 million acres, up 6% year-on-year, but drought conditions remain uncertain. Brazil's new crop harvest is progressing well, with exports in the first 14 working days of June reaching 146,800 tons, 10.6% higher than the same period in 2025, providing some supply stability.
Demand: Macro Headwinds Weigh on Overseas Consumption
International cotton prices are under pressure from demand-side negatives. US-Iran military tensions raise concerns about oil price spikes via the Strait of Hormuz, which could boost synthetic fiber costs but has limited direct impact on cotton consumption. More concerning are two new EU regulations: a fixed tariff on cross-border parcels under 150 euros effective July 1, and the Ecodesign for Sustainable Products Regulation banning destruction of unsold clothing from July 19. These will raise end-product costs and dampen European demand.
Southeast Asian textile and apparel exports already reflect this slowdown. Bangladesh's May exports plunged 90% month-on-month and year-on-year to just $440 million; Cambodia's exports fell 87-88%; Vietnam's April exports dropped 9% month-on-month and 4% year-on-year to $3.72 billion. As Western demand weakens, imported cotton yarn prices are falling—the average price of C32S carded yarn from major origins dropped 178 yuan to 22,861 yuan/ton, 403 yuan cheaper than domestic yarn.
Supply Chain: Cost Pressure vs. Order Uncertainty
Domestic cotton strength has not passed through to yarn. The C32S carded yarn average price edged down 10 yuan to 23,264 yuan/ton, reflecting cautious buying by downstream mills. Polyester staple fiber continued to fall, down 178 yuan to 7,187 yuan/ton, increasing substitution pressure. This "cotton up, yarn flat" pattern squeezes spinner margins, especially for export-oriented mills facing higher domestic raw material costs alongside weaker overseas orders.
On the positive side, China's June manufacturing PMI rose to 50.3%, returning to expansion territory, and industrial profits grew 18.8% year-on-year. CCPIT data shows textile and apparel companies remain among the top three sectors for overseas exhibition participation, indicating resilient export capabilities. However, the outcomes of the US Section 301 tariff hearings and India's actual cotton imports after tariff removal will be key near-term variables.