Import Cotton Prices Ease, Zhengzhou Futures Under Pressure: Procurement Window May Open for Spinners

Import cotton and Zhengzhou cotton futures weakened in tandem on July 9, with the data revealing a clear cost transmission chain: every 1-cent drop in import cotton prices translates into a significant cost advantage for domestic spinners.

Background

On July 9, import cotton quotes at China's main ports edged lower across the board. The international cotton price index (SM) settled at 90.92 cents/lb, down 0.61 cent/lb from the previous day. Converted at the 1% tariff rate, the port delivery price was approximately RMB 15,226/ton. The M-grade index stood at 88.99 cents/lb, equivalent to RMB 14,907/ton.

At the Zhengzhou Commodity Exchange, the main 2609 contract closed at RMB 15,930/ton, down 245 yuan/ton from the prior session, with open interest declining by 34,680 lots. The combination of falling prices and shrinking open interest suggests that long positions are being unwound, confirming a bearish market sentiment.

Industry sentiment scores for the entire cotton value chain were all negative: cotton scored -1, lint -1, and cotton yarn -0.5. This indicates that upstream cost support is systematically weakening, with bearish pressure propagating downstream.

Industry Impact

The impact of lower import cotton prices on the domestic market goes beyond simple price tracking. More importantly, the price spread between imported and domestic cotton is narrowing. Previously, high international prices forced domestic mills to prioritize Xinjiang cotton, driving up local spot prices. Now, with import costs declining, a substitution effect is emerging, putting direct competitive pressure on domestic lint.

For cotton yarn mills, this cost relief comes at a critical time. Over the past two months, yarn ex-factory prices have been inverted relative to raw material costs, severely compressing mill margins. The decline in input costs should at least help narrow losses. However, lower upstream prices do not automatically translate into stronger downstream demand—apparel buyers remain cautious, and destocking has not accelerated.

The significant reduction in open interest on the Zhengzhou exchange—by 34,680 lots—indicates that industrial capital is actively reducing risk exposure. Such behavior often occurs at the early stage of a price trend reversal. If open interest continues to shrink, further price declines could follow.

Practical Recommendations

For Buyers - The spread between import cotton and Zhengzhou futures has narrowed to approximately RMB 700/ton, the lowest in three months. Mills are advised to prioritize import cotton orders, utilizing 1% tariff quotas to lower raw material costs. - Monitor the USDA monthly supply-demand report due in late July. If global ending stocks are revised upward, import cotton prices could fall further. Adopt a phased procurement strategy to avoid a single large position.

For Exporters - Lower import cotton costs will enhance the price competitiveness of Chinese cotton yarn exports. Mills are advised to proactively adjust FOB quotes to capture market share from Southeast Asian competitors. - However, be mindful of RMB exchange rate volatility. The current RMB/USD midpoint is oscillating within a range. Use forward forex hedging instruments to lock in margins.