Imported Cotton Prices Edge Down, Weakening Cost Support for China's Cotton Textile Chain

The price gap between imported and domestic cotton is narrowing, but this shift stems from weakening costs rather than demand recovery. On July 9, imported cotton offers at China's main ports edged down. The international cotton price index (SM) stood at 90.92 cents/lb, down 0.61 cents/lb from the previous day; the M index was 88.99 cents/lb, down 0.60 cents/lb. Converted at the 1% tariff rate and the Bank of China midpoint exchange rate, the landed cost for SM-grade cotton was approximately 15,226 yuan/ton, and for M-grade, about 14,907 yuan/ton. This downward shift in import costs directly pressures the domestic spot market.

Clear upstream transmission chain

Imported and domestic cotton are close substitutes. When foreign cotton prices weaken, the pricing power of domestic lint cotton contracts, and cost support erodes. On the same day, the Zhengzhou Cotton Exchange's main contract (2609) closed at 15,930 yuan/ton, down 245 yuan/ton, with open interest falling by 34,680 lots. The simultaneous drop in price and open interest indicates weak market confidence and short-term bearish sentiment.

This price signal cascades downstream. Cotton yarn, as an intermediate product, relies on cotton and lint cotton for raw material costs. The weakening upstream directly undermines cotton yarn's cost support. Industry data shows a slightly bearish impact score of -0.5 for the cotton yarn segment, but prolonged upstream weakness could trigger broader declines.

Real impact on industrial clusters

Fluctuations in imported cotton prices most directly affect coastal textile clusters in Shandong, Jiangsu, and Zhejiang. Mills that rely on imported cotton for high-count and combed yarns will feel the cost change first. Lower landed costs theoretically open a procurement window for these firms to lock in cheaper raw materials.

However, downstream demand shows no signs of synchronous recovery. End-markets for garments and home textiles remain in the off-season, with orders limited to small-lot, just-in-time needs. If mills increase purchases solely due to lower raw material prices without matching sales, they risk inventory buildup and capital tie-up.

Exchange rate and policy variables matter

The actual cost of imported cotton is also significantly affected by RMB exchange rate movements. The current midpoint rate is relatively stable, but if the RMB depreciates, it would partially offset the cost advantage from lower foreign cotton offers. Additionally, policy variables such as the issuance of sliding-duty quota and reserve cotton purchase schedules can alter the relative pricing between imported and domestic cotton.

From a macro perspective, the global cotton supply-demand landscape is shifting. The Northern Hemisphere's new crop is entering a critical growth period, and weather and acreage changes in major producers like the US, India, and Brazil will influence international cotton prices in the coming months. The current minor decline may be a phase fluctuation rather than a trend reversal.

Practical recommendations

For buyers - Use the current price window to lock in 1-2 months of raw material needs, but avoid overstocking. - Monitor RMB exchange rate movements; if significant depreciation occurs, recalculate the cost spread between imported and domestic cotton. - Prioritize purchasing SM-grade or higher imported cotton to meet downstream quality requirements for yarn.

For mills - Maintain flexible inventory management with a 'small batch, multiple orders' strategy to reduce price fluctuation risk. - Strengthen order coordination with downstream clients to avoid blindly increasing production due to lower raw material costs, which could lead to finished goods inventory buildup. - Track Zhengzhou Cotton futures' open interest changes and basis trends, and consider hedging to lock in processing margins when necessary.