On July 9, imported cotton prices at China's major ports recorded a modest decline. The international cotton price index (SM) fell by 0.61 cents to 90.92 cents per pound, while the M index dropped 0.60 cents to 88.99 cents per pound. Under the 1% tariff rate, the port delivery price for SM-grade imported cotton stood at approximately 15,226 yuan per ton, and M-grade at 14,907 yuan per ton. Although the decline was limited in scope, it targeted the fragile equilibrium of the current domestic cotton market.
Direct Impact of Lower Import Costs
The weakening of imported cotton prices directly reduces import costs. For Chinese textile mills, there is a clear substitution effect between foreign and domestic cotton. When imported cotton becomes more price-competitive, mills prioritize foreign supplies, reducing demand for domestic cotton. The simultaneous decline in both SM and M indices means imported cotton's cost advantage has grown, putting direct pressure on domestic spot prices.
In the futures market, the main Zhengzhou Cotton Exchange contract (2609) closed at 15,930 yuan per ton, down 245 yuan from the previous session, a decline of about 1.5%. Open interest also fell by 34,680 lots. The dual drop in price and open interest signals fading bullish confidence and capital outflows. This weakness is not an isolated event but a rational response to lower import costs—when foreign cotton is cheaper, the pricing anchor for domestic cotton naturally shifts downward.
Supply Chain Transmission: Gradual Weakening from Cotton to Yarn
Cotton price fluctuations do not stop at the raw material level; they propagate downstream. The weakening of imported cotton prices first impacts the ginned cotton market. Ginned cotton, as a direct processed product, is highly correlated with raw cotton prices. When import costs decline, the substitution effect pushes downstream buyers toward foreign cotton, pressuring domestic ginned cotton spot prices and eroding cost support.
Moving further downstream, the cotton yarn sector also feels the chill. Cotton yarn's primary cost comes from cotton and ginned cotton. Loosening upstream prices means the cost support for cotton yarn begins to erode. Although adjustments in cotton yarn prices typically lag behind raw materials, the direction is clear. On the same day, the multi-score for cotton yarn was only -0.5, a minor bearish signal, but it serves as an intermediate indicator of supply chain transmission. If upstream cotton prices remain weak, a reduction in cotton yarn prices is only a matter of time.
For textile enterprises, this complicates inventory management. In a downward price cycle, holding high-cost inventory carries significant risk, while downstream order quotations face more aggressive price pressure.
Price Expectations and Procurement Timing
The core market contradiction lies in whether the decline in imported cotton prices is a short-term fluctuation or the start of a trend. From a macro perspective, the global cotton supply-demand balance has not changed dramatically. However, the weakening of China's port quotations reflects international cotton merchants' cautious demand outlook. Domestically, the reduction in Zhengzhou cotton open interest suggests speculative capital is exiting, and market sentiment leans bearish.
For procurement companies, it is crucial to distinguish between two scenarios: if the price drop is a technical correction, then buying on dips is reasonable. But if it marks the beginning of a new downward cycle, procurement pace should be controlled to avoid building large positions during a downtrend. Historically, sustained declines in imported cotton prices often coincide with deep domestic cotton market corrections, and the current contraction in open interest reinforces this concern.