China's domestic cotton price traced a sharp rise-and-fall curve in July 2026, but downstream textile mills failed to keep pace. According to the China Cotton Association's latest monthly report, the CCIndex 3128B averaged 17,695 yuan per tonne in July, up 15.2% year-on-year, while 32-count pure cotton yarn prices barely budged — averaging 23,328 yuan per tonne, actually down 8 yuan from the previous month. This widening scissors gap between upstream and downstream is squeezing already thin margins for spinners.
Supply Side: Reserve Sales Fully Absorbed, New Crop Deficit Expected
State reserve cotton auctions launched on July 20 and every lot offered was sold. By month-end, cumulative sales reached 80,200 tonnes at an average price of 17,253 yuan per tonne, equivalent to 17,871 yuan on a 3128B basis. The average premium bid hit 1,638 yuan per tonne, with the highest transaction at 19,000 yuan. The signal is clear: small and medium mills lacking import quotas are turning to reserve cotton as a substitute for foreign supplies, bidding more aggressively. However, as auctions continued, sentiment gradually rationalised and premiums began to narrow.
On the new crop, national planting area fell 3.9% year-on-year to 43.07 million mu. Yield is forecast at 166.1 kg per mu, up 0.4%, putting total output at 7.153 million tonnes, down 3.5%. Xinjiang remains dominant with approximately 6.857 million tonnes, over 95% of the total. The Yellow River basin fared better than last year with yields up 2.6%, while the Yangtze basin, hit by excessive rainfall, saw output fall 14.3%. Weather disruptions had limited impact on overall production, but expectations of high opening ginning prices suggest cost-side support will persist when the new crop arrives.
Demand Side: Off-Season Inventory Buildup and Export Headwinds
July saw textiles continue their seasonal slowdown. Autumn-winter orders had yet to materialise at scale, and finished goods inventories accumulated noticeably. National Bureau of Statistics data show yarn output at 1.814 million tonnes, down 2.2% year-on-year and 5.9% month-on-month. Xinjiang produced 321,000 tonnes, up 17% year-on-year but down 2.6% month-on-month — capacity continues migrating westward, but the monthly decline confirms the slowdown is broad-based.
Exports faced similar pressure. July textile and apparel exports reached US$28.79 billion, up 7.6% year-on-year but down 1.6% month-on-month. Cotton product exports totalled US$5.99 billion, down 7.3% month-on-month. Shipments to the EU fell 11.9%, to the US 4.2%, and to Belt and Road countries 8.9%. Order diversion by Southeast Asian competitors in mid-to-low-end segments is becoming evident, compounded by trade policy volatility. Cumulative exports for January-July reached US$174.81 billion, up 2.4% year-on-year, but the first 11 months of the 2025/26 marketing year saw a 1% decline — year-end pressure cannot be ignored.
Import structure is also shifting. July cotton imports totalled 92,000 tonnes, down 16.6% month-on-month but up 72.5% year-on-year. Australian new crop arrivals surged, pushing Australia's share to 59.8%, up 31.9 percentage points from the previous month. Brazil and the US accounted for 18.8% and 6.7% respectively. Reserve sales partially replaced import demand, while reduced foreign cotton cost-effectiveness dampened buying interest.
Global Perspective: Tightening Supply Narrows Price Gap
International cotton prices trended upward in July. The Cotlook A Index averaged 88.9 US cents per pound, up 12.8% year-on-year and 3% month-on-month. Converted at 1% tariff, this equates to 14,887 yuan per tonne — 2,808 yuan below domestic prices, a gap 221 yuan narrower than the previous month. The USDA's August report cut global ending stocks for 2026/27 by 326,600 tonnes, pushing the stock-to-use ratio down to 56.7%, reinforcing expectations of tighter supply.
What does this mean? A narrowing price gap erodes the cost advantage of imported cotton, raising procurement costs for mills reliant on foreign supplies. Meanwhile, global supply contraction may keep international prices elevated, limiting downside room for domestic prices even amid weak demand.
On inventories, commercial cotton stocks stood at 2.5 million tonnes at end-July, down 19.4% month-on-month but up 14.1% year-on-year. Industrial stocks rose 2.3% month-on-month to 888,000 tonnes but slipped 0.8% year-on-year. Commercial destocking is accelerating, yet the year-on-year surplus indicates social inventory pressure has not fully dissipated.