80,200 tonnes of reserve cotton, fully sold at auction, with an average premium of 1,638 yuan per tonne. That is the headline number from the auction launched on July 20. Yet on the same timeline, national yarn output fell 5.9% month-on-month, yarn prices failed to follow cotton upward, and finished goods inventories kept building. Two opposing data sets point to a less obvious conclusion: the supply top-up before new crop arrival has not eased downstream margin pressure. Instead, it has accelerated profit shifting upstream to cotton.
Supply Side: Full Auction, But Premiums Are Narrowing
According to the China Cotton Association monthly report, by July 31, cumulative reserve cotton sales reached 80,200 tonnes, with an average transaction price of 17,253 yuan per tonne, equivalent to 17,871 yuan per tonne for grade 3128B, and an average premium of 1,638 yuan per tonne. The highest price was 19,000 yuan per tonne; the lowest was 16,060 yuan per tonne. Mills participated actively. Some small and medium spinners lacking import quotas treated imported reserve cotton as an effective channel for foreign cotton, bidding more aggressively.
Notably, early premiums were high, but as auctions continued, sentiment turned more rational and premiums narrowed. This means the reserve auction is fulfilling its supply-gap role, but shrinking premiums also signal mills' declining willingness to pay up for raw material. For buyers, reserve cotton is a short-term restocking window, not a long-term cost solution.
Demand Side: Off-Season and Export Pullback Weigh on Yarn Output
National Bureau of Statistics data show July national yarn output at 1.814 million tonnes, down 2.2% year-on-year and 5.9% month-on-month. Xinjiang output was 321,000 tonnes, up 17% year-on-year but down 2.6% month-on-month. Xinjiang capacity keeps expanding, yet national output is contracting, suggesting inland spinning capacity is exiting faster than Xinjiang is adding.
On exports, customs data show July textile and apparel exports at USD 28.79 billion, up 7.6% year-on-year but down 1.6% month-on-month. Cotton products accounted for USD 5.99 billion, up 4.4% year-on-year but down 7.3% month-on-month. Exports to the US and EU fell 4.2% and 11.9% month-on-month respectively; exports to Belt and Road countries dropped 8.9%. January-July exports totaled USD 174.81 billion, up 2.4% year-on-year. Weak off-season orders and order diversion to Southeast Asia made the monthly decline unsurprising.
Cotton yarn prices: the July average for domestic 32-count pure cotton yarn was 23,328 yuan per tonne, down 8 yuan month-on-month but up 2,743 yuan year-on-year. Downstream firms resisted yarn price hikes, and with cotton prices high, spinning margins kept compressing.
Price Side: Narrowing Internal-External Spread, High New Crop Opening Expected
Domestic cotton prices spiked then retreated in July. Early-month heat and drought in Xinjiang fueled减产 expectations, pushing prices up; mid-to-late July, reserve cotton releases eased supply pressure, and weak off-season demand drove prices down. The China Cotton Price Index (CCIndex3128B) averaged 17,695 yuan per tonne in July, up 15.2% year-on-year and 0.8% month-on-month.
Internationally, the Cotlook A Index averaged 88.9 cents per pound, up 12.8% year-on-year and 3% month-on-month. Converted at 1% tariff, it stood at 14,887 yuan per tonne, 2,808 yuan below domestic cotton, with the spread narrowing by 221 yuan from June. Lower foreign cotton cost-performance dampened buying interest. July cotton imports were 92,000 tonnes, down 16.6% month-on-month but up 72.5% year-on-year. Australian new cotton arrivals surged, raising Australia's share to 59.8%, up 31.9 percentage points month-on-month; Brazil and the US accounted for 18.8% and 6.7% respectively.
For the new crop, China Cotton Association surveys show planted area at 43.066 million mu, down 3.9% year-on-year; expected yield at 166.1 kg per mu, up 0.4%; total output at 7.153 million tonnes, down 3.5%. Xinjiang output is about 6.857 million tonnes, down 3.5%; the Yellow River basin about 162,000 tonnes, down 2.4%; the Yangtze River basin about 72,000 tonnes, down 14.3%. The USDA August report cut 2026/27 global ending stocks by 326,600 tonnes, pushing the stock-to-use ratio to 56.7%, intensifying supply tightness expectations.
This means cotton price support remains firm before new crop arrives, and seed cotton opening prices will likely be high. For spinners, cost pressure will not be fundamentally eased by reserve sales. For traders, narrowing internal-external spreads are shrinking import arbitrage space.
Inventory Side: Commercial Stocks Draw Down, Industrial Stocks Edge Up
By end-July, national commercial cotton inventory stood at 2.5 million tonnes, down 19.4% month-on-month but up 14.1% year-on-year. Industrial inventory was 888,000 tonnes, up 2.3% month-on-month but down 0.8% year-on-year. The commercial drawdown reflects traders accelerating shipments and downstream just-in-time buying consuming social stocks. The slight industrial build indicates some mills restocked modestly via reserve auctions and spot purchases.
Yet industrial inventory remains down 0.8% year-on-year, meaning mills still run low raw material stocks and stay cautious. This low-inventory, just-in-time model amplifies the lag between cotton price moves and yarn prices, and makes auction marginal changes more sensitive.