The domestic cotton market in the first half of 2026 experienced a rally followed by a correction. The main contract of Zhengzhou Cotton futures rose from 14,600 yuan/ton at the start of the year to nearly 17,000 yuan/ton in early May, a two-year high, before pulling back to a cumulative gain of 10.25%. This movement was driven by expectations of reduced planting area, a tightening global supply-demand balance, and rigid demand from textile capacity expansion, but the seasonal lull and external pullback capped further gains.
Inventory Drawdown and Import Surge
The change in commercial inventories is one of the most noteworthy indicators of the first half. At the beginning of the year, inventories peaked at 5.698 million tons due to concentrated new cotton arrivals, but then entered a five-month continuous drawdown, falling to 3.124 million tons by the end of June—a reduction of over 41%. This destocking pace indicates stronger-than-expected downstream consumption resilience, especially in Xinjiang, where inventories tightened to 1.9439 million tons, while port stocks remained high at 600,000 tons, showing a structural divergence between tight inland and loose ports.
Import data further confirms the domestic supply gap. From January to May 2026, China imported approximately 826,000 tons of cotton, a year-on-year surge of 89%. Brazilian cotton, with its price advantage, dominated, accounting for about 500,000 tons or 60% of the total, with some months exceeding 70%. US cotton imports were about 90,000 tons, or 11%, ranking second. This shift in import structure indicates accelerating changes in global cotton trade flows, with Brazil solidifying its role as a rising supply source.
Planted Area Decline Less Than Expected
Early market expectations of an 8%-10% reduction in cotton planting area fell short. The actual national planted area was 46.32 million mu, down only 3.1% year-on-year. Xinjiang planted 41.535 million mu, down 3.4%, mainly due to policy guidance for withdrawing non-suitable cotton areas; inland areas planted 4.568 million mu, down slightly by 0.2%. The extension of the 18,600 yuan/ton subsidy standard until 2028 has provided a clear floor for farmers' planting enthusiasm.
Currently, most cotton in Xinjiang is in the flowering stage, but high temperatures are becoming a new variable. Many regions in Xinjiang are experiencing heatwaves, with local maximum temperatures exceeding 40°C. Cotton fields in Bazhou, Turpan, Hami, and other main producing areas face a high risk of heat damage. The Yangtze River basin is suffering from excessive rainfall and insufficient sunlight. Whether yields materialize largely depends on weather developments in mid-to-late July.
Spinning Mill Operating Rates Show Weak Recovery
Spinning mill operating rates in H1 exhibited a weak recovery pattern: peaking at 78.6% during the peak season in March but gradually declining to 74.2% by the end of June under off-season pressure. The divergence between large mills with full orders and small-to-medium enterprises facing difficulties is noteworthy. Cotton price gains far exceeded those of yarn, leading to persistent losses in spot profits for inland mills, suppressing operating willingness. Yarn and gray fabric inventories shifted from declining to rising, further weakening downstream restocking momentum.
In July and August, the traditional off-season will slow destocking further. The real focus is on the September-October period when new cotton hits the market, and commercial inventories will quickly rebound from lows. Whether autumn/winter orders materialize will determine if operating rates can peak again during the golden season. The continuous expansion of Xinjiang's textile capacity provides long-term support for cotton demand, but short-term demand recovery remains uncertain.
Tight Supply-Demand Balance and Key Battlegrounds
Looking ahead to H2, the domestic cotton market will enter a tight supply-demand balance. Q3 is the transition window between old and new crops, with commercial inventories continuing to draw down and limited spot availability, providing support for prices. However, the off-season's downstream gray fabric inventory pressure will cap upside. Entering Q4, the peak autumn/winter season combined with Xinjiang capacity expansion should boost raw material restocking demand, potentially driving prices higher.
Weather changes will be the core variable for short-term price fluctuations. Additionally, macro exchange rate volatility, weaker-than-expected order recovery, and policy adjustments are risks to watch.