The signal of falling imported cotton costs became clear on July 9. Quotes for imported cotton at China's main ports edged down, with the International Cotton Price Index (SM) falling 0.61 cents to 90.92 cents per pound, translating to a duty-paid port price of approximately 15,226 RMB per ton (at 1% tariff). The M-grade index also fell 0.60 cents to 88.99 cents per pound, equivalent to 14,907 RMB per ton. This shift was not isolated but resonated with a weak performance in domestic futures markets.
The Linkage Between Futures and Spot Markets
The same day, the main Zhengzhou Commodity Exchange (ZCE) cotton futures contract (2609) reinforced the bearish sentiment. It closed at 15,930 RMB per ton, down 245 RMB per ton (1.5%), with open interest declining by 34,680 lots, indicating active long position liquidation. The synchronized decline in futures and imported cotton quotes suggests the market is pricing in looser supply-demand fundamentals. Mechanistically, lower import costs directly lower the pricing anchor for domestic cotton—when foreign cotton becomes cheaper, textile mills tend to increase import purchases, exerting substitution pressure on domestic spot cotton.
Price Transmission Along the Supply Chain
Price pressure is transmitting from upstream cotton to midstream and downstream segments. In the lint cotton market, the substitution effect of imported cotton is weighing on domestic spot prices, with cost support weakening. Industry data shows the multi-directional score for lint cotton has turned to -1, indicating broad market recognition of accumulating bearish factors. Further downstream, cotton yarn is experiencing more moderate impact, with a score of -0.5. This is because yarn prices are buffered not only by raw material costs but also by demand-side factors such as final orders and mill operating rates. The current transmission in the yarn market is more about loosening cost support rather than demand collapse.
Implications for Textile Mills' Procurement Strategies
For textile mills, fluctuations in imported cotton quotes directly affect raw material cost control. The current weakness in foreign cotton prices suggests a potential procurement window, but caution is warranted given the ongoing weakness in futures. Historically, when ZCE cotton futures see a sharp drop in open interest, it often signals a phase of bottoming, but this time the decline coincides with falling import quotes, indicating that external supply pressure has not yet abated. Mills should monitor basis changes before the September contract delivery and key data such as U.S. cotton export sales reports to identify trend reversals.
Potential Changes in Regional Markets and Trade Patterns
The decline in imported cotton quotes at China's main ports essentially reflects a rebalancing of global cotton supply and demand. From a regional perspective, textile mills in major cotton-importing provinces such as Shandong, Jiangsu, and Henan will be the first to benefit from cost advantages—if foreign cotton remains cheaper than domestic, the utilization rate of import quotas will rise, and port inventory digestion may accelerate. On the other hand, competition for Xinjiang cotton is intensifying, especially against the backdrop of relatively ample domestic inventories.