The full sell-off of 80,200 tonnes of reserve cotton within eleven days, at an average premium of 1,638 yuan per tonne, reveals a raw material gap tighter than the market had anticipated before the new crop arrives. The July monthly report from the China Cotton Association exposes the real anxiety across the textile chain as the off-season collides with a supply gap.
Dual Pressure on Supply
China's cotton planting area has been cut for consecutive years, falling 3.9% year-on-year to 43.07 million mu in the 2026/27 season. Although yield per mu edged up 0.4% to 166.1 kilograms, total output is projected to fall 3.5% to 7.153 million tonnes. Xinjiang, the production core, is expected to contribute 6.857 million tonnes, also down 3.5%, with heat-induced boll shedding and pest damage varying significantly across regions.
Imports are equally tight. July cotton imports reached 92,000 tonnes, down 16.6% month-on-month, with Australian new crop arrivals surging to a 59.8% share, followed by Brazil at 18.8% and the US at 6.7%. Cumulative imports for January-July hit 1.026 million tonnes, doubling year-on-year, but reserve cotton sales partially replaced import demand as the narrowing price spread eroded foreign cotton's cost advantage. The USDA's August report further cut global ending stocks by 326,600 tonnes, pushing the stock-to-use ratio down to 56.7%, reinforcing expectations of tightening global supply.
Off-Season Demand Reality
The textile sector remained in its seasonal lull in July, with autumn/winter orders yet to materialize at scale and finished goods inventory accumulating. 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's yarn output reached 321,000 tonnes, up 17% year-on-year but down 2.6% month-on-month, confirming the ongoing migration of spinning capacity to the region without altering the overall weak demand picture.
The price transmission chain is blocked. Domestic 32-count pure cotton yarn averaged 23,328 yuan per tonne, down just 0.04% month-on-month but up 13.33% year-on-year. Downstream buyers resist yarn price hikes, squeezing spinners' margins as cotton stays elevated. This means upstream cotton price increases cannot flow smoothly to fabric and garment segments, leaving yarn and weaving mills bearing the brunt.
On exports, July textile and apparel shipments totaled $28.79 billion, up 7.6% year-on-year but down 1.6% month-on-month. Cotton product exports fell 7.3% month-on-month to $5.99 billion, with shipments to the US and EU down 4.2% and 11.9% respectively, and Belt and Road markets down 8.9%. Order diversion by Southeast Asian competitors, combined with trade policy volatility, is making exporters more cautious about booking schedules.
Narrowing Spreads and Inventory Drawdown
Domestic cotton prices retreated from highs in July, with the CCIndex3128B averaging 17,695 yuan per tonne, up 15.2% year-on-year but only 0.8% month-on-month. Early-month heat and drought in Xinjiang fueled减产 expectations, pushing prices up briefly; mid-to-late July reserve cotton releases eased supply pressure, and off-season demand weakness drove prices down.
International prices strengthened notably. 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, this equals 14,887 yuan per tonne, 2,808 yuan below domestic prices, with the spread narrowing by 221 yuan from the previous month. Middle East geopolitical tensions pushing oil prices higher, chemical fiber price increases enhancing cotton's cost-effectiveness, and reduced US new crop expectations all supported international prices. The narrowing spread means imported cotton's price advantage is eroding, making reserve cotton auctions a critical channel for small and medium mills with limited import quotas.
Inventory data confirm the drawdown trend. By end-July, national commercial cotton stocks stood at 2.5 million tonnes, down 19.4% month-on-month but up 14.1% year-on-year; industrial stocks reached 888,000 tonnes, up 2.3% month-on-month but down 0.8% year-on-year. Traders accelerated shipments while downstream just-in-time buying consumed social stocks, and some mills replenished modestly through auctions. The year-on-year rise in commercial stocks indicates lingering pressure in circulation, while the slight decline in industrial stocks reflects factories' caution about the outlook.
The Pricing Battle for New Crop
With the new crop about to arrive, the market widely expects short-term cotton prices to retain upward momentum, with seed cotton opening prices at high levels. The Yellow River basin is faring better than last year, with yield per mu expected at 77.7 kilograms, up 2.6% year-on-year; the Yangtze basin, despite excessive rainfall, expects yield per mu of 65.8 kilograms, up 2.1%, though total output falls 14.3% due to reduced area.
For buyers, the core contradiction is clear: reserve cotton auction prices (equivalent to 3128B at 17,871 yuan per tonne) have anchored market psychology, and if new crop opening prices significantly exceed this, downstream acceptance will be tested. Off-season finished goods accumulation has yet to ease, and spinning mills have limited capacity to absorb high-priced raw materials.