In June 2026, domestic and international cotton prices finally emerged from a near six-month decline, showing signs of stabilization. However, beneath the surface, two diverging narratives are unfolding: domestic basis remains firm and exports posted a modest month-on-month increase, while ICE cotton futures remain weak and major Southeast Asian producers are seeing synchronized export contractions. China's textile and apparel trade in the first half of 2026 reads more like a stress test report—resilience is intact, but the temperature gap is widening.
Cotton Price Divergence: Zheng Cotton Outperforms ICE, Wide Spread Signals Caution
According to public data from China Customs, the main Zhengzhou Cotton futures contract rebounded by approximately 2.8% in June after three consecutive months of decline, while ICE cotton futures rose only 0.5% over the same period. As a result, the domestic-international cotton price spread widened to over RMB 3,000 per ton, a historical high for this time of year. This price structure has directly slowed the pace of imported cotton procurement: textile mills are prioritizing domestic and reserve cotton, significantly reducing inquiries for imported bales.
The firm basis reflects supply-side constraints. Xinjiang's cotton-growing regions experienced below-average temperatures in May and June, prompting some agencies to lower their 2026/27 crop forecast by 5%-8%. On the demand side, domestic yarn mill operating rates remained around 65% in June—below last year's level but without any panic-related capacity cuts. The stabilization in cotton prices is more a function of cost support and supply disruption than demand-driven recovery.
Export Resilience: Modest Growth, but Structural Concerns Loom
Customs data shows that China's textile and apparel exports in the first half of 2026 grew by about 2.3% year-on-year, with June recording a 1.8% month-on-month increase. By category, apparel exports (up 3.1%) outperformed textile yarns and fabrics (up 1.4%), indicating stronger recovery in finished garment orders. However, export growth to Europe and the US slowed to less than 1% in June, while exports to ASEAN maintained over 4% growth.
The flip side of this 'resilience' is channel substitution. Export data from Vietnam and Bangladesh provides a comparative lens: Vietnam's textile and apparel exports fell roughly 3.5% year-on-year in H1, while Bangladesh's decline exceeded 8%. China's modest export increase partly reflects order repatriation from Southeast Asia, as global buyers find China's supply chain integrity and delivery reliability more attractive when Southeast Asian capacity is constrained by energy costs and logistics inefficiencies. Whether this substitution effect persists depends on the pace of Southeast Asian capacity recovery in the second half.
Regional Competition: China's Window of Opportunity and Risk
Bangladesh's sharp export decline was primarily driven by foreign exchange shortages that made L/C openings difficult, coupled with power outages in May that disrupted production. Vietnam faced high yarn inventories and mill utilization rates below 70%. These disruptions have opened a short-term window for Chinese textile exporters: some European and American brands have shifted knitwear orders originally destined for Bangladesh to China, shortening lead times by 10-15 days.
But this window will not stay open forever. Two variables to watch in H2: first, the cost advantage from Southeast Asian currency depreciation—the Vietnamese dong has weakened about 4% year-to-date, directly lowering its export quotes; second, if ICE cotton remains weak, imported cotton will regain its price appeal, potentially improving cost structures for Southeast Asian mills. For China, the current wide domestic-international cotton price spread actually undermines the price competitiveness of its cotton-based exports—a paradox that needs careful navigation.