Sugar Market: India's Import Approval Sparks Global Rally

The global raw sugar market saw prices continue their upward trajectory this week, reaching fresh highs as sentiment was ignited by a major policy shift from India. The country's Directorate General of Foreign Trade officially issued a notification on August 20, approving a 100万吨 duty-free raw sugar import quota, valid until October 31, 2026. This marks the first time in nearly a decade that such imports have been permitted, fueling optimism across international markets.

In the domestic Chinese market, spot prices have shown modest gains tracking the international strength. Guangxi sugar groups are quoting prices in the range of 5,170 to 5,250 yuan per tonne, while Yunnan sugar groups are offering between 4,990 and 5,050 yuan per tonne. Processed sugar mills have set their mainstream quotations between 5,630 and 6,050 yuan per tonne. The estimated import cost within the quota stands at 4,510 to 4,530 yuan per tonne, while out-of-quota imports are estimated at 5,730 to 5,750 yuan per tonne.

Looking at the raw sugar outlook, the continuous rally this week was driven primarily by India's confirmation of the 100万吨 duty-free import quota, a development the market had been eagerly anticipating. However, a rational perspective is warranted. On the positive side, this confirms India's tight domestic supply situation—the country not only struggles to export but must now import to meet domestic needs. Should production continue to decline in the 26/27 crushing season, further import requirements may emerge toward season's end, opening up long-term price potential. On the bearish side, Brazil's production remains the dominant pressure point. Institutional estimates currently place sugarcane production above 700 million tonnes, with sugar output projected around 42.9 million tonnes. Brazil's Center-South region is expected to produce between 39 to 39.5 million tonnes, still historically elevated. Given that sugar continues to offer better price advantages over ethanol, we reiterate the need to closely monitor Center-South crushing data to verify sugar mix recovery. Once ample Brazilian supply is confirmed, the bullish impact of localized shortages will be diluted.

For the domestic market, both futures and spot prices have risen modestly in tandem with raw sugar but remain restrained overall. The core constraint is the current inventory situation, coupled with expectations of increased production next season and ongoing imports, ensuring ample overall supply. The rally in raw sugar has eliminated profits on out-of-quota imports, yet quota imports, syrup, and pre-mix powder imports continue to pose potential pressure. Domestic upward momentum remains notably weaker, with price floors rising only gradually. Prudent monitoring of August sales figures is advised.

Cotton Market: Weather Disruptions Provide Solid Bottom-Line Support

On the supply side, weather disruptions both domestically and internationally are stimulating market sentiment, though the ultimate impact requires time to verify. As of August 18, areas affected by D1-D4 level drought account for 82% of US cotton acreage, up 7 percentage points week-on-week. According to China's Central Meteorological Observatory, temperatures in northern Xinjiang, western Inner Mongolia, the northwest region, North China, Huang-Huai, Jianghuai, and Jianghan are expected to be 1-2°C above normal in August, posing high risks of heat damage to crops including corn and cotton. Meanwhile, precipitation in northern Xinjiang, western Inner Mongolia, and most of the northwest region is forecast to be 10-50% below normal, potentially exacerbating soil moisture deficits and necessitating vigilance against periodic drought conditions. Cumulative auction transactions from July 20 to August 20 reached 192,496 tonnes with a 100% transaction rate and an average price of 17,208.20 yuan per tonne.

On the demand front, July retail sales of domestic terminal textiles and apparel turned negative year-on-year. The traditional off-season for textiles is nearing its end, with spinning mill operating rates recovering slightly month-on-month, while weaving mill operating rates continue to decline. July retail sales of clothing, footwear, hats, needles, and textiles reached 92.16 billion yuan, down 1% year-on-year, compared to overall social retail sales growth of 0.6%. For January-July, cumulative retail sales in this category reached 862.78 billion yuan, up 5.8% year-on-year, while overall social retail sales grew 1.2%. As of the week ending August 14, the comprehensive yarn load rate stood at 49.68%, up 0.3 percentage points week-on-week; pure cotton yarn mill load reached 65.62%, up 0.13 percentage points. Meanwhile, the comprehensive short-fiber fabric load was 55.42%, down 0.5 percentage points, and full cotton grey fabric load stood at 53.9%, down 0.22 percentage points week-on-week.

Regarding trade flows, both cotton and cotton yarn imports declined month-on-month in July, though cumulative year-to-date imports remain higher year-on-year. July exports of clothing and accessories reached $16.45 billion, up 8.49% year-on-year; January-July cumulative exports hit $89.403 billion, up 0.9%. July exports of textile yarn, fabrics, and related products reached $12.346 billion, up 6.39% year-on-year; cumulative January-July exports were $85.345 billion, up 3.9%. China imported 90,000 tonnes of cotton in July, down 20,000 tonnes month-on-month, bringing cumulative imports to 1.03 million tonnes for January-July, up 510,000 tonnes year-on-year. Cotton yarn imports in July totaled 160,000 tonnes, down 10,000 tonnes month-on-month, with cumulative imports of 1.21 million tonnes, up 430,000 tonnes year-on-year.

Inventory dynamics show that during the reserve auction period, commercial cotton inventory destocking slowed noticeably in the second half of July. Spinning mills saw both raw material and finished product inventories decline month-on-month, while weaving mill finished product inventories continued to accumulate. As of end-July, commercial cotton inventory stood at 2.4994 million tonnes, down 292,700 tonnes month-on-month but up 309,600 tonnes year-on-year. Industrial inventory was 887,900 tonnes, up 34,700 tonnes month-on-month but down 10,500 tonnes year-on-year. As of the week ending August 14, comprehensive yarn inventory was 24.96 days, down 0.26 days week-on-week; short-fiber fabric comprehensive inventory was 30.9 days, up 0.26 days. Spinning mill cotton inventory was 31.94 days, down 0.17 days, and cotton yarn inventory was 24.4 days, down 0.57 days. Weaving mill cotton yarn inventory was 7.58 days, up 0.01 days, while full cotton grey fabric inventory was 34.18 days, up 0.18 days week-on-week.

Internationally, macro and weather disruptions have frequently appeared, with US cotton futures prices trending upward on a shifting center of gravity. From a macroeconomic perspective, recent US economic data suggests diminishing expectations for a September rate hike. The CME FedWatch Tool indicates the probability of a September hike has fallen to around 36%, with the probability of no hike significantly higher. The odds of a 25 basis point hike in December stand at approximately 45%. On the fundamental side, weather disruptions have re-emerged. NOAA data shows that as of August 18, drought-affected US cotton acreage stands at 82%, up 7 percentage points week-on-week. Meanwhile, US cotton crop conditions have been deteriorating, with the good-to-excellent rate at only 38% as of the week ending August 16, down 2 percentage points week-on-week and 14 percentage points year-on-year. The USDA August report reflects this by lowering the 2026/27 US cotton yield estimate month-on-month, though it increased planted acreage, resulting in only a modest 20,000-tonne reduction in production forecast to 2.963 million tonnes. Market views diverge—some believe weather impact is limited and yields won't decline significantly, while others dismiss the acreage increase. What's certain at this juncture is that US cotton growing regions are indeed experiencing varying degrees of drought stress, and with expectations of a strong El Ni帽o in 2026, weather-related news is likely to persist. Under these conditions and the high probability of no September hike, US cotton futures are trending upward on a shifting center of gravity. Whether expectations materialize will be key, with near-term firm consolidation expected and potentially greater volatility in September.

Domestically, weather disruptions persist, the off-season is drawing to a close, and Zhengzhou cotton futures possess upward momentum. The main contract has seen its price center shift upward, breaking through the 17,000 yuan per tonne integer level. We believe two factors are driving this: first, high-temperature weather disruptions increasing production reduction expectations; second, the approaching end of the traditional off-season fueling demand recovery hopes. Xinjiang cotton is currently in the boll-opening stage. According to the Central Meteorological Observatory's August 17 report, 3-5 days of high temperatures are expected over the next ten days in Xinjiang, western Inner Mongolia, and the Sichuan Basin, which could adversely affect cotton crop development. Persistent weather disruptions are intensifying concerns about larger year-on-year production declines for new cotton, though dissenting voices argue the actual high-temperature impact is limited. The true 2026 cotton output remains to be verified over time. What's certain is that weather suitability during this year's cotton growing season has been weaker than the same period last year, and weather disruptions cannot be falsified in the short term, providing support. On demand, the traditional off-season is ending, with spinning mill operating rates already recovering month-on-month. While weaving mill rates are declining month-on-month, they remain significantly higher year-on-year. Market expectations for the traditional "Golden September, Silver October" peak season are building. However, these are largely expectation-driven, and potential risks exist—if production declines prove less than expected before new cotton hits the market, or if September demand fails to show clear improvement, Zheng cotton would face significant pressure. Additionally, ongoing reserve auctions, with daily volumes maintained at 8,000 tonnes and a 100% transaction rate, continue to increase supply and may cap price upside. Attention should be paid to auction duration and any adjustments to daily volumes. In summary, short-term Zheng cotton prices are rising on expectations, though these cannot be falsified yet and market consensus is lacking. The path ahead depends on expectation fulfillment and reserve auction supply dynamics. Near-term prices are expected to maintain firm consolidation, with September upside potential contingent on expectation realization—a cautious approach is warranted.

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