A striking signal emerged in China's cotton market in July: reserve cotton auctions were fully subscribed and commercial inventories plunged 19.4% month-on-month, yet cotton yarn prices remained almost flat. This suggests the upstream tightness has not transmitted downstream, squeezing spinners' margins as raw material costs stay high while finished yarn prices struggle to rise.
Supply-Demand Structure: Output Down, Consumption Up, Tight Balance Ahead
The China Cotton Association projects 2026/27 national cotton output at 7.15 million tons, down 3.5% year-on-year, while consumption is forecast at 8.92 million tons, up 1.7%. Imports are expected at 1.62 million tons, up 1.3%. Ending stocks are projected to fall 2.5% to 6.236 million tons. These figures point to a shift from surplus to tight balance, underpinning price support.
Regionally, Xinjiang output is expected at 6.857 million tons, down 3.5%, with yields flat, indicating acreage reduction as the main driver. In inland areas, the Yellow River basin yields are up 2.6%, while the Yangtze basin output is projected at only 72,000 tons, down 14.3% due to excessive rain. Inland cotton now accounts for less than 4% of national output, further consolidating Xinjiang's dominance and impacting logistics and spinning capacity layout.
Inventories and Imports: Reserve Releases Fill Gap, Foreign Cotton Loses Appeal
By July 31, cumulative reserve cotton sales reached 80,200 tons at an average price of 17,253 yuan/ton, with an average premium of 1,638 yuan/ton. Mills bid actively, but premiums narrowed as releases continued, indicating a shift from panic buying to rational procurement. Commercial inventories fell 19.4% month-on-month to 2.5 million tons, though still 14.1% higher year-on-year, suggesting destocking is driven by reserve releases and trader sales rather than robust demand.
Imports in July totaled 92,000 tons, down 16.6% month-on-month but up 72.5% year-on-year. Australian cotton surged to a 59.8% share, followed by Brazil at 18.8% and the US at 6.7%. The monthly decline is attributed to narrowing domestic-international price spreads—the Cotlook A index, after 1% tariff, was 2,808 yuan/ton below domestic prices, a spread reduction of 221 yuan from June. This means the window for cheap foreign cotton is closing, raising procurement costs.
Price Transmission: Upstream Peaks and Falls, Downstream Lags
Domestic cotton prices peaked early in July on Xinjiang heat and drought concerns, then retreated as reserve releases eased supply and off-season demand remained weak. The CCIndex 3128B averaged 17,695 yuan/ton, up 15.2% year-on-year but only 0.8% month-on-month. International prices strengthened, with the Cotlook A index averaging 88.9 US cents/pound, up 3% month-on-month.
Transmission to downstream was sluggish: domestic 32-count pure cotton yarn averaged 23,328 yuan/ton, down only 8 yuan month-on-month but up 13.3% year-on-year. Spinners' margins compressed as yarn price hikes met resistance. National Bureau of Statistics data show July yarn output at 1.814 million tons, down 2.2% year-on-year and 5.9% month-on-month. However, Xinjiang yarn output surged 17% year-on-year to 321,000 tons, reshaping national supply and intensifying competition for inland mills.
Exports and Risks: Order Diversion, Inventory Pressure
July textile and apparel exports reached $28.79 billion, up 7.6% year-on-year but down 1.6% month-on-month. Cotton product exports totaled $5.99 billion, down 7.3% month-on-month, with shipments to the US and EU falling 4.2% and 11.9%, respectively, and to Belt and Road countries down 8.9%. Off-season demand and Southeast Asian competition weighed on exports, while finished goods inventories accumulated, raising operational risks. Cumulative exports from January to July rose 2.4% year-on-year, but the 2025/26 season's first 11 months showed a 1% decline, indicating weakening momentum.