When reserve cotton sales entered the market with a 100% subscription rate, it signaled not just supply replenishment but a reshaping of price expectations. Domestic cotton prices peaked and fell in July, while international prices strengthened, narrowing the gap to 2,808 yuan per ton. The supply-demand gap before new cotton arrivals is being filled by both policy releases and capacity migration.
Mixed Signals in Supply-Demand Data
According to the latest monthly report from the China Cotton Association, the 2026/27 national cotton planting area is 43.066 million mu, down 3.9% year-on-year. Expected yield is 166.1 kg/mu, up 0.4%, with total output of 7.153 million tons, down 3.5%. Xinjiang output is 6.857 million tons, a similar decline, while the Yellow River basin sees a 2.6% yield increase, but the Yangtze basin is projected to drop 14.3% due to excessive rainfall. Consumption is expected at 8.92 million tons, up 1.7%, imports at 1.62 million tons, up 1.3%, and ending stocks at 6.236 million tons, down 2.5%. The combination of declining output and rising consumption points to a shift from surplus to tight balance.
More notably, the revised 2025/26 data shows imports raised to 1.6 million tons, up 51.9%, while exports were cut to 10,000 tons, down 23.1%. The import surge reflects demand recovery driven by capacity concentration in Xinjiang and growing reliance on cheaper foreign cotton. However, July imports fell 16.6% month-on-month to just 92,000 tons, with Australia's share rising to 59.8%, indicating shifts in arrival schedules and price competitiveness.
Industry Transmission: Inventory Build-Up and Price Insensitivity
July remained an off-season for textiles, with autumn/winter orders not yet placed in scale and finished goods inventories accumulating. National Bureau of Statistics data shows monthly yarn output of 1.814 million tons, down 5.9% month-on-month, but Xinjiang output rose 17% year-on-year to 321,000 tons, falling only 2.6% sequentially. This regional divergence reflects rigid capacity release in Xinjiang versus order losses in inland areas. Cotton yarn prices struggled to follow cotton gains; 32s combed yarn averaged 23,328 yuan/ton, down 8 yuan month-on-month but up 13.33% year-on-year, as downstream acceptance remained limited and margins were squeezed.
Exports also faced pressure. July textile and apparel exports reached 28.79 billion USD, up 7.6% year-on-year but down 1.6% month-on-month. Cotton product exports fell 7.3% sequentially to 5.99 billion USD, with EU shipments down 11.9% and US down 4.2%. Southeast Asian competition and trade policy volatility are forcing exporters to reassess order timing. Commercial cotton inventories stood at 2.5 million tons, down 19.4% month-on-month, but industrial inventories rose 2.3% to 888,000 tons, indicating cautious restocking by mills.
Reserve Sales and Price Expectation Anchoring
Reserve cotton sales launched on July 20, with cumulative transactions of 80,200 tons by July 31, fully subscribed at an average price of 17,253 yuan/ton (equivalent to 17,871 yuan/ton for 3128B grade), with an average premium of 1,638 yuan/ton. Early premiums were high, but later bids became more rational as supply continued. Reserve cotton not only filled the gap before new crop arrival but also served as an alternative source for small mills lacking import quotas, pushing up average premiums.
The domestic-international price gap narrowed to 2,808 yuan/ton, down 221 yuan from the previous month, reducing foreign cotton's appeal and curbing import enthusiasm. The USDA August report cut global ending stocks by 326,600 tons, lowering the stocks-to-use ratio to 56.7%, intensifying supply tightness expectations. Domestically, prices oscillated between drought-driven production cut fears and reserve releases, with the CCIndex3128B averaging 17,695 yuan/ton, up 15.2% year-on-year but only 0.8% month-on-month. In the short term, new crop opening prices are expected to remain high, but downstream acceptance will determine upside potential.
Three Key Variables Before New Crop Arrival
First, the actual impact of Xinjiang's high temperatures on yields is not yet fully known; some areas face boll shedding and pest damage, but regional differences are significant, and final output awaits harvest verification. Second, the pace and premium of reserve sales will directly influence market pricing of the supply gap. Third, geopolitical tensions have pushed oil prices up, indirectly boosting cotton's competitiveness against synthetics, but if oil retreats, cotton support may weaken. For buyers, chasing prices at current levels carries risk; phased purchasing is advisable. For exporters, currency fluctuations and Southeast Asian order diversion require vigilance, with a focus on locking long-term contracts.