In June 2026, national textile enterprise industrial stocks fell to approximately 880,000 tons, a month-on-month decrease of 4.0%, marking the third consecutive month of decline. However, the industry operating rate dropped to 82% and the yarn production-sales ratio fell to 94%, down 6.8 and 8.3 percentage points respectively from the previous month, with both indicators weakening for two consecutive months. The simultaneous occurrence of inventory reduction and demand contraction has placed the cotton yarn market in a classic "volume-price divergence" dilemma.
Demand-Side Stalling: Production-Sales Ratio and Operating Rate Decline Together
While the June yarn production-sales ratio of 94% remains relatively high, the 8.3 percentage point month-on-month drop is the largest single-month decline in nearly a year. The operating rate of 82% is approaching the industry's breakeven point, with some small and medium-sized spinning mills proactively reducing production. The simultaneous decline in both indicators directly points to insufficient end-user orders—downstream weaving and garment enterprises have significantly reduced their purchasing willingness, and cotton yarn shipment pressure has been accumulating since May.
Although the three consecutive months of declining industrial stocks appear to be a positive signal of destocking, combined with the falling production-sales ratio, it is clear that this is more a result of mills passively cutting raw material purchases and reducing operating rates. Enterprises are not actively reducing inventory; they are "unable to receive orders and afraid to buy." This type of passive destocking provides very limited support to prices.
Futures Market: Slight Uptick Cannot Mask Weak Confidence
On July 1, the main Zhengzhou Commodity Exchange cotton yarn contract (September 2026) settled at 22,655 yuan per ton, up just 45 yuan from the previous trading day, a gain of only 0.2%. Volume stood at 12,334 lots, with open interest at 14,528 lots, both at relatively low levels. This price rebound appears more technical than fundamental. The lack of a corresponding increase in open interest alongside the price rise suggests that long-side capital has not formed a consensus to enter, with short-term speculative sentiment dominating.
With a long-short score of -1, the market has shifted into a bearish assessment for cotton yarn. The weakening demand side's suppression of prices has been further confirmed after the data release. For futures prices to truly stabilize, the production-sales ratio would need to rise back above 98% and the operating rate to stop falling—conditions that are currently absent.
Industry Belt Transmission: Purchasing Pace Slows Across Keqiao, Nantong, and Beyond
Major cotton yarn distribution hubs such as Keqiao Light Textile City and Nantong Home Textile City have reported that downstream grey fabric and fabric traders are generally adopting a "just-in-time, small-order, fast-turnaround" strategy. Large order procurement cycles have extended from the previous 15-20 days to over 30 days. Yarn traders' inventory turnover days have increased from 18 days in April to 24 days in June, intensifying capital occupation pressure.
- Keqiao area: Demand for knitting yarn fell approximately 12% month-on-month, with 32-count carded yarn prices dropping below 23,000 yuan per ton.
- Nantong area: Home textile yarn orders decreased 8% year-on-year, with some mills shifting capacity to polyester-cotton blends.
- Guangdong denim cluster: Purchases of high-count combed yarn have declined, with some enterprises switching to medium-low count yarns to control costs.
This regional procurement contraction is transmitting from downstream to upstream. Cotton yarn mills are forced to lower prices to maintain cash flow, but the downstream "buy on rising, not on falling" mentality has intensified wait-and-see behavior.
Q3 Outlook: Can the Peak Season Expectation Deliver?
The July-September period is the traditional autumn/winter order stocking season for the textile industry, serving as a key window to test real demand strength. Current cotton yarn prices are at year-to-date lows. If end-user orders concentrate around August, a wave of inventory replenishment could be triggered. However, risks remain:
- Overseas markets: Southeast Asian textile capacity is recovering, with some European and American orders diverted to Vietnam and Bangladesh.
- Domestic consumption: End-apparel retail sales growth is slowing, with brands adopting a conservative stance on autumn/winter procurement.
- Raw material side: Cotton prices remain high, but the cost support for cotton yarn is weakening. If cotton prices decline, it could open up room for yarn prices to fall.
Overall, the cotton yarn market is expected to maintain a pattern of "weak demand, low inventory, and narrow-range fluctuations" in the short term. The 22,600-22,800 yuan per ton range is a key support level for the main ZCE contract. If effectively broken, it could trigger a new round of stop-loss selling, accelerating the price decline.