Cotton Yarn and Fabric Exports Slump as Currency Gains and Overseas Substitution Bite

In July 2026, China's cotton yarn exports fell 12.01% year-on-year to 23,900 tons, while cotton fabric exports dropped 5.27% to 497 million meters. Following a sequential decline in June, both categories weakened in July, signaling a trend rather than a blip. For cotton textile exporters, this implies shrinking orders may extend into the second half, raising inventory and cash-flow risks.

Background

Customs data shows cotton yarn exports fell 10.79% month-on-month in June and another 8.19% in July. Cotton fabric exports, after a temporary 4.83% monthly rise in June, plunged 13.97% in July. Year-on-year, yarn exports turned from flat to double-digit decline, while fabric swung from positive to negative. Mills in Jiangsu, Zhejiang, Guangdong, and Shandong report no improvement in August orders, making annual growth unlikely.

Multiple factors are at play. Pakistan, a key market for medium-to-high count yarn and fabric, has extended an 18% import tariff on cotton, yarn, and fabric, and its own textile exports weakened from June to August, shrinking import demand. Meanwhile, the US-Iran conflict and tighter trade barriers in the US and EU have dampened consumption of high-value cotton goods, hitting exports of 40S and above yarn and high-density wide-width grey fabric.

Industrial Impact

RMB appreciation adds another layer of pressure. By the last trading day of August 2026, the central parity rate stood at 6.7811 per dollar, up 2,520 basis points year-to-date; offshore RMB hit 6.7179 on August 21, a three-and-a-half-year high. For low-margin commodities like cotton yarn and fabric, currency gains directly erode export profits, turning some orders from marginal to loss-making and discouraging mills from accepting new bookings.

More concerning is the capacity recovery in Southeast Asia. The US has imposed 10-12.5% tariffs on imports from India, Vietnam, Indonesia, and Bangladesh, but offers tariff relief for goods made with American cotton. Combined with India's free trade agreements with the EU and UK, Southeast Asian mills have ramped up operating rates, boosting local yarn production and reducing their need for imports. This means China faces not only direct trade barriers but also a loss of price competitiveness in the global supply chain.

Additionally, the delayed US-China tariff reduction on $30 billion worth of goods and threats of an extra 7.5% tariff weigh on market sentiment. For buyers, cotton yarn and fabric prices may soften in the near term, but currency volatility complicates forward pricing. For mills, balancing operating rates and margins is key; shifting to differentiated products or exploring domestic sales could be viable paths.

Practical Advice

For Buyers - Monitor RMB exchange rate trends and adopt hedging or batch purchasing strategies to mitigate currency-related cost uncertainties. - Prioritize differentiated products like high-count, high-density fabrics, which face less substitution pressure from Southeast Asia and offer more stable pricing power. - Sign medium-to-long-term agreements with suppliers to lock in prices and delivery schedules, reducing risk from single orders.

For Exporters - Diversify market focus toward emerging regions such as the Middle East, Africa, and Latin America to reduce reliance on traditional markets like Pakistan, the US, and the EU. - Leverage regional trade agreements like RCEP to explore intermediate product cooperation with Southeast Asian countries rather than direct competition. - Enhance product value by developing eco-friendly lines such as organic or recycled cotton, which can help circumvent trade barriers and command premium prices.