When reserve cotton sales were fully subscribed, the domestic cotton market did not enter a one-way rally—prices surged then fell in July, narrowing the domestic-international spread to 2,808 yuan per ton. A tight-balance pattern woven by policy supply and industrial demand is taking shape. According to the latest monthly report from the China Cotton Association, 2026/27 national output is projected at 7.153 million tons, down 3.5% year-on-year, while consumption is expected to rise 1.7% to 8.92 million tons. The supply-demand gap implies that price anchors are shifting from inventory-driven to expectation-driven dynamics.
Event Background
In July, reserve cotton sales officially started, with a cumulative 80,200 tons sold by July 31, all listed resources fully transacted at an average price of 17,253 yuan per ton, equivalent to 17,871 yuan per ton on a 3128B basis. Notably, the average premium was 1,638 yuan per ton, but after early high premiums, companies became more rational, and premiums narrowed. This reflects limited willingness among textile mills to accept high-priced raw materials, with just-in-time purchases remaining the dominant strategy. Meanwhile, domestic cotton prices initially rose on hot and dry weather expectations in Xinjiang but fell in mid-to-late July as reserve releases eased supply pressure and off-season demand weakened. The CCIndex3128B monthly average was 17,695 yuan per ton, up 15.2% year-on-year but only 0.8% month-on-month.
International cotton prices strengthened, with the Cotlook A index averaging 88.9 US cents per pound, up 3% month-on-month, translating to 14,887 yuan per ton after a 1% tariff, 2,808 yuan lower than domestic prices—a narrowing of 221 yuan from the previous month. 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. This suggests that the narrowing spread is not due to domestic strength but to higher international prices, weakening the cost advantage of imported cotton for textile enterprises.
Industry Impact
Structural changes in output deserve attention. The national cotton planting area is 43.066 million mu, down 3.9% year-on-year, but yields slightly increased by 0.4% to 166.1 kg per mu, resulting in total output of 7.153 million tons. Xinjiang's output is 6.857 million tons, accounting for 95.9% of the national total. Despite reduced acreage, yields remained stable, reinforcing the clustering effect of production capacity. Inland cotton regions continue to shrink: the Yellow River basin saw a 2.6% yield increase but only 162,000 tons total, while the Yangtze River basin suffered a 14.3% output decline to 72,000 tons due to excessive rainfall. This dominance of Xinjiang implies long-term transportation costs and supply chain risks for inland small and medium textile mills.
Downstream operations showed a stark contrast. In July, national yarn output was 1.814 million tons, down 5.9% month-on-month, but Xinjiang's output rose 17% to 321,000 tons—a clear sign of capacity migration westward. However, cotton yarn prices struggled to follow cotton price increases; the average price of 32-count pure cotton yarn was 23,328 yuan per ton, down 8 yuan month-on-month, while finished product inventories accumulated, slowing production and sales. Textile and apparel exports were 28.79 billion US dollars, down 1.6% month-on-month, with exports to the EU falling 11.9% and Southeast Asian competition intensifying. This weak downstream transmission means cotton price increases are hard to pass through, compressing mill profits.
The import market also showed new characteristics. July cotton imports were 92,000 tons, down 16.6% month-on-month, but Australian cotton's share surged to 59.8%, up 31.9 percentage points, with Brazil and the US at 18.8% and 6.7%, respectively. Reserve sales partially replaced import demand, but the surge in Australian arrivals reflects trade flow restructuring—under normalized Sino-US trade tensions, Australia is becoming a more reliable source. Cumulative imports from January to July reached 1.026 million tons, double year-on-year, indicating a rising import dependency.