July saw domestic cotton prices surge then retreat: early-month heat in Xinjiang fueled output-cut expectations, but reserve releases later pressured prices. The internal-external price gap narrowed to 2,808 yuan per tonne, down 221 yuan from June, weakening foreign cotton's appeal. This price action reflects a tug-of-war between reserve supply and weak off-season demand, signaling a shift in pricing logic before new cotton arrives.
Structural Contradictions Under Dual Supply-Demand Growth
China Cotton Association forecasts 2026/27 production at 7.15 million tonnes, down 3.5% year-on-year, while consumption is projected at 8.92 million tonnes, up 1.7%. With supply falling faster than demand, the production-consumption gap widens, dragging ending stocks to 6.236 million tonnes, down 2.5%. Imports are expected at 1.62 million tonnes, up only 1.3%—far below last season's 51.9% surge—suggesting a plateau in import reliance.
Regionally, Xinjiang's output is seen at 6.857 million tonnes, down 3.5%, with yields flat. Inland regions continue to shrink: the Yellow River basin sees yields up 2.6%, while the Yangtze basin suffers from excessive rain, with output plunging 14.3% to just 72,000 tonnes. This regional divergence strengthens market reliance on Xinjiang cotton and narrows raw material options for inland mills.
Reserve Sales and Inventory Signals
Reserve cotton auctions began July 20, with 80,200 tonnes sold through July 31—full turnover at an average price of 17,253 yuan/tonne, with an average premium of 1,638 yuan. Mills bid actively, especially for imported reserves due to quota shortages among small and mid-sized firms. Early high premiums eased as sentiment cooled, reflecting reduced supply anxiety.
Inventory data confirm this: commercial stocks fell 19.4% month-on-month to 2.5 million tonnes but remained 14.1% higher year-on-year. Industrial stocks rose 2.3% to 888,000 tonnes, showing mills replenishing cautiously. Rapid commercial inventory drawdown, supplemented by reserve sales, suggests orderly filling of the pre-harvest supply gap, yet high year-on-year stocks cap price upside.
Capacity Shift West and Export Divergence
National yarn output fell 5.9% month-on-month in July, but Xinjiang's output grew 17% year-on-year to 321,000 tonnes, with only a 2.6% monthly dip. This highlights the ongoing westward migration of textile capacity—Xinjiang shows greater production resilience even in the off-season. For buyers, this means improved supply stability for Xinjiang yarn, but price competition with inland yarn needs close monitoring.
Exports present a mixed picture: July textile and apparel exports reached $28.79 billion, up 7.6% annually but down 1.6% monthly. Cotton product exports fell 7.3% month-on-month, with shipments to the US, EU, and Belt and Road countries declining 4.2%, 11.9%, and 8.9%, respectively. Off-season orders, trade policy volatility, and Southeast Asian competition pressured cotton goods. Cumulative exports from January to July rose 2.4% to $174.81 billion, but the previous season's 11-month figure was down 1%, signaling weak full-year momentum.
Price Expectations and Strategies
The market widely expects high opening prices for new cotton, driven by a tight balance of rising demand and falling supply. However, international price strength owes more to Middle East tensions and chemical fiber price hikes than to actual demand. The Cotlook A index averaged 88.9 US cents/lb, translating to 14,887 yuan/tonne after tariffs—2,808 yuan below domestic prices. Though narrowing, the gap still offers an import window.
July's data reveal a core contradiction: upstream supply contraction expectations clash with downstream demand weakness. Reserve release pace, Xinjiang weather, and trade policy shifts will be key price drivers. In the pre-harvest transition, volatility may intensify, demanding more refined inventory and procurement management.