Imported cotton prices took a modest dip on July 9, with the SM index falling 0.61 cents to 90.92 cents/lb and the M index dropping 0.60 cents to 88.99 cents/lb. At the 1% tariff rate, port-delivered prices in China stood at RMB 15,226/ton and RMB 14,907/ton respectively. While the decline is small, its significance amplifies against the backdrop of ample global supply and languid domestic prices—a signal that the import premium is shrinking.
The Logic Behind the Dip
The trigger is a lack of fresh bullish catalysts in the international cotton market. Major Northern Hemisphere producing regions (U.S., India, Brazil) report normal weather, keeping the 2025/26 global output estimate high, while end-user consumption recovery remains tepid. ICE cotton futures have come under pressure. As China's main port prices shadow the external market, the spread between SM and M grades has narrowed to just 0.19 cents, indicating mills are becoming less picky about quality—a 'good enough' purchasing mindset is prevailing.
Implications for Domestic Mills
The immediate benefit is lower raw material costs. At current exchange rates, SM-grade imported cotton at RMB 15,226/ton is already below the domestic spot price of Xinjiang 3128B grade (around RMB 15,500/ton), creating a spread of about RMB 270/ton in favor of imports. For mills operating on razor-thin margins, this differential can make or break profitability.
However, the window may be fleeting. First, the yuan's volatility around 7.2-7.3 against the USD could raise RMB costs if depreciation continues. Second, the slower-than-expected issuance of sliding-duty quotas limits access for smaller mills. Thus, the price drop is a 'targeted benefit'—mainly for large firms with ample quotas and working capital.
Regional Mill Responses
Feedback from Shandong, Jiangsu, and Henan—key cotton-spinning hubs—shows that while inquiries picked up after the July 9 announcement, actual transactions remained subdued. Mills generally adhere to a 'hand-to-mouth' inventory strategy, unwilling to build large positions in a falling market. Downstream grey fabric and garment orders have not shown clear recovery, and yarn inventories are still rising, suppressing raw material buying appetite.