In July, domestic cotton prices peaked and then fell, while international prices strengthened, narrowing the price gap to 2,808 yuan per ton. Behind this divergence lies the tug-of-war between reserve release policy and Xinjiang capacity agglomeration. For textile mills, raw material procurement rhythm and finished goods inventory management now require more delicate balancing.
Policy and Market Rebalancing
Reserve cotton releases started on July 20, with all listed lots sold, totaling 80,200 tons by month-end at an average price of 17,253 yuan per ton. Notably, initial premiums were high, but as releases continued, sentiment turned rational and premiums narrowed. This indicates that policy is effectively supplementing supply gaps while cooling overheated market expectations.
The releases partially substituted imports, with July cotton imports falling 16.6% month-on-month to 92,000 tons, though still up 72.5% year-on-year. Australia's share surged to 59.8%, reflecting changing import source structures. For small and medium mills reliant on foreign cotton, imported reserve cotton offers access to cheaper supply, but quota constraints keep participation thresholds high.
Structural Shifts in Supply-Demand Data
The China Cotton Association projects 2026/27 national output at 7.15 million tons, down 3.5% year-on-year; consumption at 8.92 million tons, up 1.7%. With output falling and consumption rising, ending stocks are set to decline 2.5% to 6.236 million tons. This tight balance supports short-term prices, but weak downstream transmission remains a key constraint.
July yarn output fell 5.9% month-on-month to 1.814 million tons, yet Xinjiang's yarn output rose 17% year-on-year to 321,000 tons, confirming the westward capacity shift. However, finished goods inventories accumulated and margins compressed; domestic 32s pure cotton yarn averaged 23,328 yuan per ton, nearly flat month-on-month but up 13.33% year-on-year, failing to fully cover raw material costs.
Textile and apparel exports fell 1.6% month-on-month, with cotton product exports plunging 7.3% month-on-month, declining across EU, US, and Belt and Road markets. Southeast Asian diversion and trade policy volatility have limited external demand recovery, making domestic sales crucial for inventory digestion.
Price Expectations and Risks Before New Cotton Arrival
Ahead of new cotton marketing, the market widely expects high seed cotton opening prices, driven by expectations of rising demand and falling output. Historical experience, however, suggests high opening prices often lead to procurement risks, especially when finished goods inventories are high and downstream acceptance is limited—price transmission may again stall.
Commercial cotton inventories stood at 2.5 million tons, down 19.4% month-on-month but up 14.1% year-on-year, indicating destocking is progressing yet levels remain above last year. Industrial inventories rose 2.3% month-on-month to 888,000 tons, as mills cautiously replenished during the off-season, reflecting prudent optimism about future supply.
Xinjiang's planted area fell 3.9%, but yields are expected flat, with output of 6.857 million tons, down 3.5%. High temperatures caused some boll shedding and pest issues, but regional differences limited overall impact. Inland areas continued to shrink, with the Yangtze basin suffering a 14.3% output drop due to excessive rain, further strengthening Xinjiang's supply dominance.