August 2026 presented a paradoxical picture for the textile supply chain: domestic and international cotton futures and spot prices both hit yearly highs, with foreign cotton outperforming domestic and narrowing the spread, while domestic spinning output fell 6.5% year-on-year. The simultaneous heat in raw materials and coldness in production suggests that this rally is not driven by broad demand recovery but by supply-side and speculative factors. For buyers and mills, understanding this structural divergence is more important than chasing price levels.
Data behind the divergence
According to public data from China Customs, from January to July this year, cotton imports surged 100% year-on-year, and cotton yarn imports rose 56%, while textile and apparel exports only grew 2.2%. The doubling of cotton imports reflects rigid demand for high-grade foreign cotton and a preference for direct overseas procurement as price spreads narrowed or even inverted. Cotton yarn import growth, though lower than cotton, still shows a significant 56% increase, indicating growing reliance on imported yarn in downstream weaving, especially in medium-to-low count yarns, where imported yarn price advantages are squeezing domestic products.
Meanwhile, domestic spinning output fell 6.5% year-on-year, in stark contrast to the import surge. The direct reasons are insufficient terminal orders and thin margins, with many small and medium mills limiting production to support prices. More fundamentally, tight domestic cotton supply and high processing costs have made some domestic yarn varieties more expensive than imported yarn, prompting downstream enterprises to adjust their procurement structures.
Logic behind the price rally
In August, Zhengzhou Cotton Exchange futures and ICE futures hit yearly highs, with foreign cotton rising more, narrowing the spread. International markets were driven by adverse weather in major exporting countries, raising production shortfall expectations and lowering global stock-to-use ratios, attracting speculative funds. Domestically, although commercial stocks were low, reserve sales and import quota releases were steady, limiting domestic cotton's rise. This stronger foreign cotton pattern weakens domestic mills' bargaining power in international purchases, as higher foreign cotton directly raises import costs.
For the textile chain, high cotton prices are accelerating two structural changes: first, spinning profits are compressed, pushing some enterprises to switch to blends or chemical fibers; second, cost pressure on gray fabrics and finished fabrics is increasing, but end-user acceptance is limited. Even if cotton prices remain strong, downstream cannot fully pass on costs, leading to uneven profit distribution across the chain.
Impact on procurement and production
The doubling of cotton imports and significant increase in yarn imports have notable impacts on domestic cotton industrial belts. Xinjiang, the largest cotton-producing region, sees slower pima cotton sales as high prices encourage ginners to hold stocks, but reduced spinning output means weaker demand from local mills, potentially leading to inventory buildup later. In traditional spinning clusters like Shandong and Henan, imported yarn is intensifying competition, pushing some enterprises to upgrade to differentiated, high-count yarns.
Looking ahead, before new cotton arrives in September, prices are likely to remain high and volatile. However, the lagged effect of reduced spinning output may appear in Q4: if terminal demand remains weak, yarn inventories will accumulate, and even with firm cotton prices, yarn prices may not follow, squeezing mills from both sides. Thus, enterprises should not be misled by the current rally but focus on order books and inventory turnover.