The decline in imported cotton quotes is triggering a chain reaction across China's cotton industrial chain. On July 9, imported cotton prices at China's main ports edged down, with the SM index falling to 90.92 cents per pound, translating to a port delivery price of approximately 15,226 yuan per ton under a 1% tariff; the M index stood at 88.99 cents per pound, equivalent to a delivery price of about 14,907 yuan per ton. Concurrently, the Zhengzhou Commodity Exchange's main cotton contract (September 2026) closed at 15,930 yuan per ton, down 245 yuan from the previous session, with open interest declining by 34,660 lots. The simultaneous drop in futures prices and volume, combined with lower imported cotton costs, is intensifying downward pressure on domestic spot cotton prices, which had been oscillating at high levels.
Cost Transmission and Substitution Effect
Imported and domestic cotton are inherently substitutable. When imported cotton quotes fall, widening the price gap with domestic spot prices, textile mills tend to prioritize the more cost-effective foreign fiber, reducing demand for local cotton. This substitution effect directly suppresses domestic spot transaction prices in the short term. Based on July 9 data, the SM-grade imported cotton at 15,226 yuan per ton was already over 700 yuan cheaper than the Zhengzhou futures contract's 15,930 yuan per ton. For cost-sensitive spinning mills, this immediate cost advantage may accelerate inventory restructuring.
More critically, this weakening at the cost end is transmitting downstream. Cotton yarn, as a direct processed product, typically has raw material costs accounting for over 70% of its total. The simultaneous softening of imported and domestic cotton prices erodes the cost support for yarn. Although the cotton yarn market has not yet seen a significant follow-through decline, the bearish signal from upstream is already prompting mills to be more cautious in pricing and order-taking.
Signals from the Futures Market
The reduction in open interest for the main Zhengzhou cotton contract is noteworthy. On July 9, open interest fell by 34,660 lots from the previous day, indicating that long positions were actively exiting rather than being forced to liquidate. This typically suggests that capital lacks confidence in a bullish outlook and is choosing to cut losses or take profits amid the price decline. Combined with the 245-yuan drop in futures prices, short-term market sentiment has clearly turned bearish. For textile enterprises relying on futures for hedging, the current heightened volatility demands a reassessment of risk exposure and hedge ratios.
From a fundamental perspective, although domestic cotton commercial inventories are in a destocking phase, the continuous arrival of imported cotton and its low-price impact are disrupting the existing supply-demand balance. Coupled with the traditional off-season for downstream textile markets and limited new orders, the actual pace of cotton consumption is slowing. In this context, each round of decline in imported cotton quotes intensifies the wait-and-see attitude in the domestic market.