When reserve cotton sales closed with a 100% transaction rate and the domestic-international price gap narrowed to 2,808 yuan per ton, China's cotton market stands at a critical juncture of shifting supply-demand dynamics. The China Cotton Association's latest monthly report projects 2026/27 output at 7.15 million tons and consumption at 8.92 million tons, implying a supply-demand deficit of 1.77 million tons—about 140,000 tons wider than the previous year. The short-term price spike and subsequent retreat reflect the interplay of reserve policies, Xinjiang capacity migration, and international supply-demand expectations.
Widening Deficit Lifts Price Center
The association estimates new crop output at 7.153 million tons, down 3.5% year-on-year, with Xinjiang contributing 6.857 million tons, a similar decline. A marginal 0.4% increase in yield per mu (166.1 kg) cannot offset the 3.9% reduction in planted area. Meanwhile, consumption is projected at 8.92 million tons, up 1.7%, thereby widening the deficit. Imports are expected at 1.62 million tons, up only 1.3%, meaning the gap will be filled mainly by inventory drawdown—ending stocks are projected at 6.236 million tons, down 2.5%.
The stock-to-use ratio deserves attention. The USDA August report cut global ending stocks by 326,600 tons, lowering the ratio to 56.7%, a multi-year low. International expectations of a tight balance—shrinking supply and growing demand—are transmitting through the Cotlook A index, which averaged 88.9 US cents per pound in July, up 12.8% year-on-year. The domestic-international price gap narrowed from over 3,000 yuan to 2,808 yuan, reducing the appeal of imported cotton, which will affect import pacing ahead of the new crop.
Xinjiang Capacity Concentration Reshapes Regional Competition
In July, the cotton textile sector overall weakened, with national yarn output at 1.814 million tons, down 5.9% month-on-month. Yet Xinjiang's yarn output reached 321,000 tons, up 17% year-on-year and only 2.6% lower month-on-month. This contrast underscores the ongoing capacity shift to Xinjiang, where mills benefit from raw material proximity and policy support, allowing higher utilization even amid weak inland orders.
For inland spinners, this means an amplified cost disadvantage. Xinjiang yarn flooding the market is squeezing the margins of smaller inland mills. Downstream processors have shown limited acceptance of yarn price increases—the average price of 32s combed cotton yarn was 23,328 yuan per ton, nearly flat month-on-month—while cotton raw material prices rose 15.2% year-on-year, compressing profits. This divergence, with Xinjiang running full and inland under pressure, is expected to persist after the new crop arrives.
Reserve Sales and Import Structure: Policy vs. Market
The reserve cotton sales launched on July 20 saw cumulative transactions of 80,200 tons by month-end, all subscribed, at an average price of 17,253 yuan per ton, with an average premium of 1,638 yuan. Early premiums were higher; later, as enterprises became more rational, premiums narrowed. The sales not only filled the resource gap before the new crop but also partially replaced import demand—July imports fell 16.6% month-on-month to 92,000 tons. However, the import mix shifted notably: Australian new crop arrivals surged, accounting for 59.8% of imports, while Brazil and the US held 18.8% and 6.7%, respectively.
For mills reliant on imported cotton, the higher Australian share concentrates quality and price volatility risks. Meanwhile, cumulative imports from January to July reached 1.026 million tons, up 100% year-on-year, reflecting earlier bargain-hunting. As the price gap narrows, import momentum will weaken, making reserve sales a key tool for market regulation.
New Crop Seed Cotton Price Expectations and Risks
Based on expectations of rising demand and falling output, market consensus anticipates high seed cotton opening prices. Yet July's price retreat signals limited downstream tolerance for high raw material costs—textile and apparel exports fell 1.6% month-on-month in July, with cotton product exports down 7.3%, and EU-bound shipments down 11.9%. Inventory accumulation and just-in-time purchasing by mills will constrain new crop prices.
Commercial cotton inventory stood at 2.5 million tons, down 19.4% month-on-month but still 14.1% higher year-on-year, indicating incomplete destocking. Industrial inventory rose 2.3% to 888,000 tons, with some mills replenishing via reserve auctions. Ahead of the new crop, prices will oscillate between output-cut expectations and weak demand, potentially increasing volatility.