Imported Cotton Prices Rebound: Downstream Caution and Cost Pressure on Textile Mills

On July 7, imported cotton prices at China's main ports edged up. According to China Customs data, the International Cotton Price Index (SM) closed at 88.59 cents per pound, up 1.21 cents from the previous trading day, while the M-level index closed at 86.65 cents per pound, up 1.19 cents. Converted at the 1% tariff rate, the bonded port delivery price for SM grade cotton was about 14,841 yuan per ton, and for M grade about 14,521 yuan per ton.

Background

This price rebound is not an isolated event. From a global supply-demand perspective, major cotton-producing countries in the Northern Hemisphere—the United States, India, and Brazil—have all reported reduced planting areas for the new crop, leading to conservative output expectations. International cotton merchants have generally raised forward quotes, driving spot prices higher. Additionally, the recent slight weakening of the US dollar index has provided support for dollar-denominated cotton prices.

It is worth noting that while the increase is modest, it has ended a two-week downtrend. For coastal textile clusters reliant on imported cotton—such as Nantong in Jiangsu, Weifang in Shandong, and Foshan in Guangdong—this could mean an earlier-than-expected confirmation of the cost bottom.

Industry Impact

For domestic textile mills, the rise in imported cotton prices directly impacts immediate procurement costs. Currently, the price of 32-count pure cotton yarn in China remains in the 23,500-24,000 yuan per ton range, with the spread between yarn and imported cotton narrowing to less than 9,000 yuan per ton—the lowest in nearly six months. This means that if cotton prices continue to rise without a corresponding increase in yarn prices, spinning margins will be further squeezed.

Downstream fabric and weaving mills are generally adopting a wait-and-see approach. According to a survey by the China Cotton Textile Association, the average loom utilization rate in the Jiangsu-Zhejiang region in early July was about 68%, down 2 percentage points from June. Terminal apparel brand orders have not yet shown significant volume, leading to slow destocking of grey fabrics and finished fabrics. Mills are adopting a "buy-as-needed" strategy to avoid inventory risk.

From a broader perspective, the rise in imported cotton prices, coupled with RMB exchange rate fluctuations, has a more complex impact on export-oriented textile companies. On one hand, higher raw material costs weaken the price competitiveness of export products; on the other hand, if the RMB continues to depreciate against the US dollar, it could partially offset the dollar-denominated cotton price increase. However, exchange rate trends are inherently uncertain, adding difficulty to forward hedging and cost accounting.

Practical Recommendations

For Procurement Managers - Avoid chasing prices in the short term. Focus on the ICE futures main contract's range-bound opportunities between 85-90 cents per pound, and lock in forward volumes at dips. - Strengthen communication with major international cotton merchants to lock in basis through forward contracts, reducing spot price volatility. - Monitor the price spread between Xinjiang cotton and imported cotton. If domestic cotton prices remain relatively stable, consider increasing the proportion of domestic cotton to lower overall raw material costs.

For Export Enterprises - Include raw material price fluctuation clauses in export orders or shorten the validity period of quotations to prevent profit erosion from rising cotton prices. - Actively use forward exchange settlement tools to lock in exchange rate costs and hedge against RMB volatility. - Monitor the dynamics of Southeast Asian textile production capacity. If imported cotton prices continue to rise, the cost advantage of cotton yarn from Vietnam and Bangladesh may widen, necessitating adjustments in product mix or exploration of differentiated markets.