In July, domestic cotton prices rose then fell, while international prices strengthened, narrowing the price gap to 2,808 yuan per ton. This reflects the triple effect of reserve cotton auctions filling supply gaps, weak off-season demand, and a global shift toward a tight balance. For buyers, it means the cost advantage of imported cotton is fading, and domestic pricing is increasingly driven by policy and weather speculation.
Background
According to the latest monthly report from the China Cotton Association, reserve cotton auctions officially started in July, with all listed resources sold, totaling 80,200 tons at an average price of 17,253 yuan per ton (equivalent to 17,871 yuan per ton for Grade 3128B). Textile enterprises participated actively; some small and medium mills with insufficient import quotas used imported reserve cotton as an effective way to access foreign cotton, with an average premium of 1,638 yuan per ton. As auctions continued, premiums narrowed, indicating more rational market sentiment.
Meanwhile, domestic prices spiked early in July due to high temperatures and drought in Xinjiang, which fueled production cut expectations, but fell in mid-to-late July as reserve sales eased supply pressure and demand remained weak. The China Cotton Price Index (CCIndex3128B) averaged 17,695 yuan per ton, up 15.2% year-on-year but only 0.8% month-on-month. International prices strengthened on geopolitical tensions, higher oil prices boosting chemical fiber costs, and reduced U.S. production forecasts, with the Cotlook A index averaging 88.9 US cents per pound, up 3% month-on-month.
Industry Impact
Price divergence is directly reflected in trade data. Cotton imports in July were 92,000 tons, down 16.6% month-on-month but up 72.5% year-on-year. The narrowing price gap reduced the attractiveness of foreign cotton, and reserve auctions partially substituted for imports. Notably, Australian cotton arrivals surged, accounting for 59.8% of imports (up 31.9 percentage points), while Brazil and the U.S. held 18.8% and 6.7% shares respectively. This shift highlights Australia's growing role due to quality and shipping advantages.
Domestic textile production continued its off-season trend. July yarn output was 1.814 million tons, down 2.2% year-on-year and 5.9% month-on-month; however, Xinjiang's yarn output rose 17% year-on-year to 321,000 tons, with only a 2.6% monthly decline. This contrast confirms the ongoing migration of textile capacity to Xinjiang, driven by policy incentives. For mills in other regions, competitive pressure is intensifying, pushing them toward differentiated products.
Inventory accumulation is the core contradiction. Cotton yarn prices struggled to follow raw material increases, with downstream mills resistant to price hikes, squeezing profit margins. The average price of 32-count pure cotton yarn was 23,328 yuan per ton, down slightly month-on-month but up 13.33% year-on-year. This pattern of rising raw materials but stagnant yarn prices is compressing spinning profits, forcing mills to purchase only for immediate needs.
Looking at supply-demand balance, the China Cotton Association forecasts 2026/27 national cotton output at 7.15 million tons, down 3.5%; imports at 1.62 million tons, up 1.3%; and consumption at 8.92 million tons, up 1.7%. Ahead of the new crop, market expectations lean toward further price increases, with seed cotton opening prices likely high. The USDA August report also cut global ending stocks by 326,600 tons, lowering the stocks-to-use ratio to 56.7%, exacerbating supply tightness concerns.