The textile industry is experiencing a clear contraction in activity. According to the latest survey from the National Cotton Market Monitoring System in early June 2026, national textile enterprises' industrial inventories fell to approximately 880,000 tons, down 4.0% month-on-month, marking a third consecutive monthly decline. More notably, the industry's operating rate and yarn production-sales rate dropped to 82% and 94%, respectively, decreasing by 6.8 and 8.3 percentage points month-on-month, with both indicators weakening for two consecutive months.
The signals from these figures are not complicated: supply side is actively destocking, but the pace of demand contraction is faster, resulting in an overall supply-demand balance that suppresses prices. As an intermediate product, cotton yarn is caught in the pincer movement between upstream and downstream pressures.
Declining Inventories Mask Weak Demand
A three-month consecutive drop in industrial inventories appears positive at first glance, but when combined with declining operating and sales rates, the reality becomes clear: companies are not actively replenishing stocks or achieving efficient turnover. Instead, they are forced to cut raw material purchases and production due to insufficient orders and increasing shipment pressure. The inventory decline is more a passive result of weak demand than a precursor to industry recovery.
From the chain perspective, purchasing intentions in downstream apparel and home textile markets have cooled significantly over the past two months, directly leading to inventory buildup and cash flow strain at yarn mills. This pressure cascades upstream to cotton spinning enterprises, reflected in the continuous reduction of operating rates.
Futures Market: Short-Term Bounce Unlikely to Reverse Mid-Term Pressure
Despite weak fundamentals in the spot market, futures saw a slight rebound on July 1. The main contract for cotton yarn on the Zhengzhou Commodity Exchange (ZCZCE), September 2026, settled at 22,655 yuan per ton, up 45 yuan from the previous trading day, with volume of 12,334 lots and open interest of 14,528 lots. This increase is more likely a technical correction or short covering rather than a signal of fundamental reversal.
The divergence between futures and spot prices often indicates market sentiment divergence. Some funds may believe that continuous inventory declines provide a price floor, but volume and open interest have not expanded significantly, suggesting long positions remain fragile. Without substantive demand recovery, cotton yarn prices will continue to face downward pressure.
Industry Impact: Divergence Across Regions and Product Categories
Different textile industry clusters show varying sensitivity to this adjustment. Regions like Shandong and Henan, which focus on cotton yarn production with a product mix leaning toward medium-to-low counts and dependence on domestic orders, are hit harder. In contrast, factories in Jiangsu and Zhejiang, which specialize in differentiated and high-count yarns, face slower order declines but benefit from higher value-added products and wider profit margins, offering stronger resilience.
From a product perspective, conventional grades such as carded 32s and 40s face the most inventory pressure, with price competition becoming intense. High-end varieties like combed yarn and siro-spun yarn maintain relatively stable order flows, but overall demand is also narrowing.