30.59 days—that is the finished cotton yarn inventory level as of July 2, flat month-on-month, but already at a high for the off-season in recent years. When inventory days exceed 30, it means that at current sales pace, mills need a full month to clear their warehouses without increasing output. This number is becoming the heaviest reality for the cotton spinning industry at the start of Q3.
The Transmission Chain of High Inventory
Inventory pressure first hits cash flow. The production cycle for cotton yarn is typically 7-15 days, but 30 days of inventory means that the raw material, labor, and energy costs advanced by the mill are locked in the warehouse, unable to be recovered in time. For a medium-sized mill with a monthly capacity of several thousand tons, this equates to tens of millions of yuan in working capital being 'frozen.'
More troubling is that downstream weaving mills are currently restocking only for essential needs, with no active stockpiling intention. This means mills cannot clear inventory by raising prices or offering promotions—because buyers are not biting. The 30.59-day inventory is essentially a supply-demand mismatch: supply remains at normal operating rates while demand is shrinking.
Futures Side: Divergence Between Rising Open Interest and Falling Prices
The main cotton yarn contract (November 2026) on the Zhengzhou Commodity Exchange closed at 22,595 yuan/ton on July 2, down 110 yuan/ton from the previous trading day. More notably, open interest increased by 677 lots to 1,508 lots. Rising open interest accompanied by falling prices typically signals active short-position adding—market participants are betting real money on a bearish outlook.
From a basis perspective, if the spread between spot and futures prices continues to widen, it will attract hedging activity, further pressuring futures prices. The current futures price of 22,595 yuan/ton is already at a slight discount to spot prices in some producing regions, a structure that often indicates a lack of confidence in near-term fundamentals from the industrial side.
On-the-Ground Reactions in Textile Belts
In major cotton yarn producing regions such as Shandong, Henan, and Jiangsu, small and medium-sized mills have begun actively cutting output. Some have reduced operating rates from 90% to 70-80% to slow inventory accumulation. However, production cuts are not a panacea: fixed costs (depreciation, labor) do not disappear with reduced output, and the cost per ton of yarn actually rises.
Meanwhile, inventories at the trading intermediary level are also passively accumulating. Due to insufficient end-user orders, traders are reluctant to take delivery, preventing finished goods from moving out of mills into the distribution chain. This 'inventory stuck at the factory' pattern is more dangerous than inventory scattered among traders—because factories typically have weaker risk-bearing capacity.
Q3 Outlook: De-stocking as the Sole Theme
July and August are the traditional off-season for textiles, with little prospect of a substantial demand recovery. This means inventory digestion for cotton yarn can only rely on proactive supply-side contraction. If more mills join the production-cut camp, inventories could fall back to the 25-28 day range by the end of August. Conversely, if mills insist on high operating rates to protect market share, inventories may breach 35 days, triggering more drastic price adjustments.
For downstream buyers, this is a classic 'buyer's market.' However, caution is needed: excessively low purchase prices may squeeze mill profit margins, potentially leading to supply instability later.