The decline in imported cotton costs is tightening the noose on domestic cotton prices. On July 9, imported cotton prices at China's main ports generally edged down, with the international cotton price index (SM) falling to 90.92 cents per pound, down 0.61 cents from the previous trading day. Converted at a 1% tariff rate, the RMB port delivery price was approximately 15,226 yuan per ton. On the same day, the main contract of Zhengzhou Commodity Exchange (ZCE) cotton futures (September 2609) closed at 15,930 yuan per ton, down 245 yuan from the previous session, with open interest decreasing by 34,680 lots, indicating significant capital outflow.
Dual Pressure from Import Costs and Futures Prices
The drop in imported cotton prices directly lowered the benchmark procurement cost for domestic textile mills. For SM-grade cotton, the RMB-equivalent price is now below the ZCE main contract, giving mills a cheaper import alternative. The significant reduction in open interest in the futures market suggests weak confidence among long holders, with the futures price trading below the 16,000 yuan/ton threshold, exerting a negative psychological influence on the spot market. Industry data shows that ICE cotton futures also weakened in tandem, indicating that bearish sentiment from the international market is transmitting to China.
More importantly, this price pressure is not an isolated incident. Imported and domestic cotton are direct substitutes, and when foreign cotton becomes more cost-competitive, the bargaining power of domestic cotton spot prices is compressed. Feedback from the Xinjiang cotton region indicates a slowdown in recent sales, with some ginneries lowering their quotes to attract orders. However, downstream buyers remain on the sidelines, waiting for clearer bottom signals.
Supply Chain Transmission: Cost Erosion from Cotton to Yarn
The weakness in cotton prices has begun to spread downstream along the supply chain. According to publicly available industry data, the weakening of imported cotton quotes exerts a "generally bearish" impact on lint cotton spot prices, as the reduced cost support raises the risk of inventory depreciation for lint cotton traders. For the cotton yarn segment, the simultaneous weakening of upstream cotton and lint cotton prices has loosened the cost support for raw materials, creating a "slightly bearish" effect on cotton yarn prices.
For cotton spinning mills, this means profit margins may face a two-way squeeze: on one hand, the selling price of finished cotton yarn is difficult to maintain in the face of declining raw material costs; on the other hand, if mills previously purchased high-priced raw materials, the current price decline will directly erode inventory value. Feedback from downstream weaving mills indicates a clear slowdown in recent cotton yarn procurement, with most adopting a "buy-as-needed" approach to avoid inventory depreciation.
Market Expectations and Strategic Adjustments
The current price trend has altered market participants' expectations. The persistent weakening of imported cotton prices, combined with the weak performance of ZCE cotton futures, has fostered a "wait-and-see" mentality in the market. According to the bullish-bearish scoring system, cotton, lint cotton, and cotton yarn all received negative scores, with cotton and lint cotton scoring -1 and cotton yarn scoring -0.5, indicating widespread caution about short-term market conditions.
These expectations are translating into concrete strategic adjustments. Traders are reducing the signing of long-term procurement contracts and accelerating the turnover of existing inventories. Textile mills are also shortening their raw material inventory cycles, with some reducing safety stock from 30 days to less than 20 days. For foreign trade companies, while lower imported cotton costs help reduce raw material costs for export products, exchange rate fluctuations and uncertainty in end-user orders still require vigilance.