Imported Cotton Prices Dip: Analyzing Procurement Opportunities Amid Currency and Inventory Dynamics

On July 9, imported cotton prices at Chinese main ports posted a modest decline. The International Cotton Price Index (SM grade) fell 0.61 cents to 90.92 cents/lb, while the M grade dropped 0.60 cents to 88.99 cents/lb. At a 1% tariff rate, the landed prices at major Chinese ports were approximately RMB 15,226/ton and RMB 14,907/ton, respectively. Although the decline was small, it signals a shift in the global cotton supply-demand landscape.

Drivers Behind the Price Dip The price correction is not purely technical. On the macro front, a strengthening US dollar has pressured dollar-denominated cotton prices. Simultaneously, expectations of higher production in the US, India, and Brazil for the new season are already baked into spot quotes. China Customs data shows a significant year-on-year increase in imported cotton arrivals during the first half of 2026, leading to elevated port inventories. Traders are under pressure to destock, with some quotes nearing cost levels.

Notably, the premium of SM over M grade has narrowed to 1.93 cents/lb, indicating shrinking margins for higher-grade cotton. For mills producing medium-to-high count yarns, this means some relief in raw material costs.

The Hidden Variable: Exchange Rates Exchange rates play a critical role in landed cost calculations. On July 9, the CNY/USD midpoint fluctuated within a narrow range, but market expectations for the yuan’s trajectory remain divided. If the yuan depreciates, actual procurement costs will rise even if international quotes remain unchanged. At the current RMB 15,226/ton SM price, mills with hedging capabilities may find the level attractive, but smaller weavers may see their thin margins eroded by currency risk.

Industry Response and Procurement Pace Feedback from coastal textile clusters in Shandong, Jiangsu, and Henan indicates mill operating rates of around 70%, with finished yarn inventories building up. Most mills adopt a "buy-as-needed" strategy, avoiding large stockpiles. July is traditionally a slow season, with downstream gray fabric orders mostly small and short-term, offering limited support for cotton prices. However, some export-oriented mills are watching current quotes closely, viewing a further drop to around 88 cents/lb as a favorable entry point for Q3 restocking.

Practical Recommendations ### For Buyers - Monitor exchange rates: If the yuan depreciates, consider using forward contracts or opting for bonded-zone spot transactions settled in RMB. - Stagger purchases: With SM-grade prices oscillating near 90 cents/lb, buy in 2-3 tranches to avoid cost spikes from single fluctuations. - Prioritize high-grade cotton: The narrowing SM-M premium makes higher-grade cotton more cost-effective, especially for high-count yarn or export orders.

For Export Enterprises - Track arrival schedules: Large volumes of US and Brazilian cotton are expected in July-August, likely further depressing port prices. Delaying purchases may be prudent. - Hedge with forward contracts: When securing export orders at current low prices, lock in forward cotton contracts to protect against future price rises. - Diversify product mix: Low cotton prices offer an opportunity to develop blended products with higher added value, reducing reliance on pure cotton price volatility.