Cotton prices are rising, yet cotton yarn prices remain stubbornly stable—a divergence that is squeezing spinners' processing margins. Industry public data shows that for the week of June 26 to July 2, the average processing fee for C32S pure cotton yarn stood at 4,652 yuan/ton, down 3.43% week-on-week. Behind these numbers lies a tug-of-war between rising raw material costs and sluggish downstream demand.
Price Scissors: Cotton Up, Yarn Flat
This week, both spot and futures cotton markets strengthened. The main Zheng Cotton September 2026 contract closed at 16,125 yuan/ton on July 2, up 30 yuan/ton from the previous trading day, with notable weekly gains. Fundamentals supported a bullish outlook, earning cotton a positive score of +1.
However, pure cotton yarn prices did not follow. Prices for C32S carded ring-spun yarn remained largely unchanged, causing processing fees to narrow from approximately 4,817 yuan/ton last week to 4,652 yuan/ton. The main Zheng Cotton Yarn November 2026 contract closed at 22,595 yuan/ton on July 2, down 110 yuan/ton, indicating short-term price pressure. Cotton yarn scored -1, a stark contrast to cotton's +1.
This 'cotton up, yarn flat' pattern reflects a mismatch between cost-push and demand constraints. Upstream, cotton supply is tightening due to acreage, weather, and policy factors, pushing prices higher. Downstream, weaving and garment sectors have not seen order recovery as expected, and buyers are cautious about high-priced raw materials, preventing yarn prices from rising in tandem.
Industrial Transmission: Squeezing Spinners' Margins
Narrowing processing fees directly impact spinners' profitability. At 4,652 yuan/ton for C32S, after deducting fixed costs like labor, energy, and depreciation, actual profit margins are razor-thin. Small and medium-sized spinners face increased cash flow pressure, and some may be forced to cut operating rates or shift to blended yarns and differentiated products.
In key cotton spinning regions such as Shandong, Henan, and Jiangsu, some mills have already implemented production cuts to support prices. Xinjiang cotton, with its transport costs and quality premium, is seeing subdued purchasing interest from inland spinners amid shrinking margins. Upstream ginners and traders are hoarding stocks due to rising cotton prices, further tightening supply.
For downstream buyers, stable yarn prices offer a short-term window. But if cotton prices continue to rise, a yarn price catch-up is only a matter of time, passing cost pressure to fabric and garment manufacturers.
Futures Signals: Growing Market Divergence
The spread between Zheng Cotton and Zheng Cotton Yarn futures reveals market disagreement. Cotton futures found support near 16,100 yuan/ton with rising open interest, indicating strong bullish sentiment. In contrast, yarn futures broke below 22,600 yuan/ton, with bears in control.
This divergence suggests that capital believes the cotton supply story is not over, but yarn demand weakness is unlikely to change soon. The widening discount of spot yarn prices to futures implies a more pessimistic outlook for the near term. For hedgers, now may be a time to lock in processing margins, but basis risk must be managed.
Practical Recommendations
For Buyers - Current yarn prices are at a temporary low; consider increasing inventory of regular items (e.g., C32S, C40S) to lock in costs. - Monitor the cotton-yarn price spread; if it continues to widen, the risk of yarn price catch-up rises. Place orders in batches rather than all at once. - Prioritize cooperation with large spinners that have stable raw material supply chains to avoid delivery delays from smaller mills cutting production.
For Foreign Trade Companies - In export order pricing, factor in potential yarn price increases due to narrowing processing fees; consider adding raw material price fluctuation clauses in contracts. - Watch the RMB exchange rate and its interplay with cotton prices; if cotton rises alongside RMB depreciation, export competitiveness may suffer. - Develop differentiated products (e.g., organic cotton, recycled cotton yarn) to avoid price wars in standard categories and improve bargaining power.
In summary, this week's narrowing processing fee is a microcosm of the divergence between cotton and yarn markets. Caught between high raw material costs and weak downstream demand, spinners' profit defense has only just begun.