The cotton textile market is undergoing a painful inventory correction driven by weakening end demand and a breakdown in raw material cost transmission. The latest survey from the China Cotton Textile Association reveals a chain reaction of shrinking orders, rising inventories, and compressed margins across the entire supply chain, from cotton to grey fabric.
Raw Material Divergence: Cost Logic Reshapes After Macro Sentiment Fades
Cotton prices briefly rallied but have since come under renewed pressure. News of a U.S.-Iran agreement initially boosted overseas markets, pushing the Zhengzhou Cotton Exchange's main contract to 16,140 yuan/ton. However, as speculative enthusiasm subsided, the market refocused on fundamentals—the downstream cotton yarn sector is in its traditional off-season, lacking substantive demand support. The main contract subsequently fell to 15,615 yuan/ton. This trajectory clearly indicates that the cotton market lacks endogenous drivers and will likely remain range-bound in the near term.
Polyester staple fiber has undergone a similar cost logic restructuring. With shipping traffic through the Strait of Hormuz recovering to nearly 60% of pre-conflict levels, geopolitical risk premiums have largely evaporated. Falling oil prices have transmitted directly through the polyester chain, pulling staple fiber futures down to around 6,900 yuan/ton. This means inventory built up on supply disruption fears is now being digested, with cost-side compression cascading into the yarn sector.
In stark contrast, viscose staple fiber shows supply tightness. Factory shipments remain constrained, allowing traders to lift prices. This structural shortage is unlikely to ease quickly, but downstream yarn sales pressure is already capping upside potential; the industry expects prices to stabilize.
Yarn Market: The Dual Trap of Inventory Build and Price Erosion
The pure cotton yarn market continues its off-season pattern. While quoted prices are broadly stable, trade channels are widely offering discounts, keeping actual transaction levels low. Spinners' finished goods inventories are slowly rising; downstream weaving operating rates are declining, grey fabric stocks are accumulating, and autumn/winter orders have yet to materialize. This 'stable quote, soft deal' dynamic reflects companies' passive willingness to sacrifice margins to maintain cash flow.
Specialty yarns exemplify the broader struggle. Mills are running at full capacity, but order lead times are only about one month, dominated by small, scattered orders. The off-season has driven downstream operating rates lower, intensifying price competition and further squeezing margins. Companies can only express 'cautious optimism,' a phrase that betrays anxiety over order continuity.
Polyester-blended yarns have been hit hardest by falling raw material costs. Yarn prices tracked the decline in polyester staple fiber, and trading activity has further thinned in the off-season, with downstream buyers only purchasing for immediate needs. Mills have insufficient orders, and product inventory pressure is mounting. With prices yet to stabilize, a wait-and-see sentiment prevails, and restocking momentum is unlikely in the near term.
Fabric Market: Export Uncertainty Compounds De-stocking Pressure
The grey fabric market remains in an off-season lull, with slowing shipments, scarce new orders, and rising finished goods inventories. Weavers are adopting a 'buy-as-needed' strategy for raw materials, with minimal stockpiling appetite. This comprehensive de-stocking behavior, from raw materials to finished goods, is a direct reflection of weakening end demand.
The yarn-dyed fabric market faces similar challenges. Raw cotton prices have fallen by about 300 yuan/ton, but cotton yarn prices are difficult to maintain, with high-count pure cotton yarn already down about 180 yuan/ton. Fabric product prices are showing localized weakness, compressing margins to razor-thin levels. Companies are purchasing on a just-in-time basis and remain cautious about the outlook.
The denim market has felt the export pressure earliest. The factory-gate price for 10s open-end cotton yarn remains range-bound at 14,600 yuan/ton. Both domestic and export markets are sluggish, with shrinking downstream orders and declining mill operating rates. A strengthening U.S. dollar adds further uncertainty to the export environment, and companies are closely monitoring trade dynamics.
Industry Outlook: Inventory Correction Likely to Extend into Q3
Synthesizing performance across categories, the core contradiction of this inventory cycle is clear: raw material cost volatility cannot be effectively transmitted downstream, while end demand—both domestic and export—shows no meaningful improvement. Falling cotton and polyester staple fiber prices should normally stimulate downstream buying, but yarn mills are instead passively building inventory due to insufficient orders. While viscose staple fiber tightness provides some cost support for certain yarns, yarn prices remain weak, indicating that demand-side pressure far outweighs cost-side impetus.
From a timing perspective, with the off-season compounded by export uncertainty, a substantive market turning point is unlikely before the end of Q3. Companies should prioritize cash flow management and avoid forced discount selling amid high inventory.