July saw domestic cotton prices rally then retreat, with reserve sales emerging as a key variable. According to the China Cotton Association, all listed reserve cotton was sold, totaling 80,200 tonnes at an average price of 17,253 yuan per tonne. The timely release of this policy tool not only filled the supply gap before the new crop arrives but also curbed excessive market speculation. For textile mills, this shifted procurement from panic buying to just-in-time replenishment, slowing production and sales momentum.
Background
On the supply-demand front, a slight decline in new crop output is nearly certain. Association surveys show the 2026/27 national planting area at 43.066 million mu, down 3.9% year-on-year. Expected yield is 166.1 kg/mu, up 0.4%, bringing total output to 7.153 million tonnes, down 3.5%. Xinjiang output is projected at 6.857 million tonnes, matching the national decline. Inland regions show mixed performance: the Yellow River valley is slightly better, while the Yangtze valley suffers from excessive rainfall. Although no widespread crop failure occurred, high-temperature stress and pest pressure cap yield growth.
Demand remains resilient. The association forecasts consumption at 8.92 million tonnes, up 1.7%, and imports at 1.62 million tonnes, up 1.3%. The supply-demand balance shifts from last year's dual growth to one of rising demand and falling output. Ending stocks are expected to decline 2.5% to 6.236 million tonnes. Unless policy releases more reserves, cotton prices have solid support, and seed cotton opening prices are likely higher than last year.
Industry Impact
The textile industry's off-season weakness is evident in July data. National yarn output was 1.814 million tonnes, down 5.9% month-on-month and 2.2% year-on-year. However, Xinjiang's yarn output surged 17% annually, underscoring the accelerating westward migration of spinning capacity. Yarn prices struggled to follow cotton higher; 32s combed cotton yarn averaged 23,328 yuan per tonne, nearly flat month-on-month, while cotton costs remained elevated, squeezing mill margins. Rising finished goods inventories indicate limited downstream acceptance of high raw material prices, with price transmission temporarily broken.
Export markets also faced pressure. July textile and apparel exports reached $28.79 billion, down 1.6% month-on-month, while cotton product exports fell sharply by 7.3% to $5.99 billion. Exports to the US and EU dropped 4.2% and 11.9% month-on-month, respectively, and those to Belt and Road countries declined 8.9%. Southeast Asian competition and trade policy uncertainty dampened pre-season order placement. Export-oriented mills are hesitant to rush shipments, instead watching currency and tariff developments.
Internationally, tight supply expectations are narrowing the price gap. The Cotlook A index averaged 88.9 US cents per pound, up 3% month-on-month. After converting at a 1% tariff, the import price was 2,808 yuan per tonne lower than domestic, with the gap narrowing by 221 yuan. The USDA August report cut global ending stocks by 326,600 tonnes, pushing the stocks-to-use ratio down to 56.7%, underpinning foreign prices. As the gap narrows, imported cotton loses appeal; July imports fell 16.6% month-on-month to 92,000 tonnes, though Australian cotton arrivals surged to a 59.8% share.