The softening of imported cotton costs is rippling downstream. On July 9, imported cotton quotes at China's main ports edged down, with the international cotton price index SM falling 0.61 cents to 90.92 cents/lb, and the M index down 0.60 cents to 88.99 cents/lb. Converted at a 1% tariff rate, the port delivery price for SM grade is approximately 15,226 RMB/ton, and for M grade around 14,907 RMB/ton. This shift directly disturbs the price anchor of China's domestic cotton market.
Import costs drop, narrowing domestic-international price spread
The decline in imported cotton quotes means a tangible reduction in procurement costs for domestic textile mills. At current exchange rates, SM imported cotton is about 700 RMB/ton cheaper than comparable domestic lint, widening the price advantage. This cost edge may encourage mills to increase imported cotton blending ratios, reducing demand for domestic cotton. Industry data shows that every 1 cent/lb drop in imported cotton prices exerts about 150-200 RMB/ton downward pressure on domestic prices.
Meanwhile, the Zhengzhou Commodity Exchange cotton futures main contract for September 2026 closed at 15,930 RMB/ton, down 245 RMB/ton, with open interest falling by 34,680 lots. The weak futures performance coupled with declining open interest suggests fading bullish confidence and capital outflows. Under the futures-spot linkage, domestic lint prices face notable pressure, with some inland warehouse 3128B grade quotes falling to 15,800-16,000 RMB/ton.
Weakening cost support, cotton yarn prices face catch-up decline
The weakness in upstream cotton and lint prices is transmitting to the cotton yarn segment. The current cotton yarn market is in the off-season, with downstream fabric mills operating at low rates and procurement limited to urgent small orders. The softening raw material cost base leaves cotton yarn prices without cost support, and some varieties already show room for negotiation. 32-count carded cotton yarn is quoted at 22,800-23,200 RMB/ton, down about 200 RMB/ton from last week. For spinners, if cotton prices continue to fall, yarn prices may face further downward correction, squeezing profit margins.
From an industrial logic perspective, the impact of lower imported cotton costs is multi-layered. On one hand, it directly reduces raw material costs for spinners, theoretically improving margins. On the other hand, the expectation of lower prices discourages downstream restocking, fostering a 'wait-and-see' sentiment. This supply-demand tug-of-war often leads to slower inventory turnover, exacerbating price declines.
Near-term weakness persists; watch policy and demand shifts
The core issue in the current cotton market is the lack of effective demand impetus. China's textile and apparel export growth is slowing, and domestic demand shows no clear improvement. On the supply side, imported cotton arrivals continue to rise, with port inventories staying high, while new crop development is generally normal, leaving little bullish impetus. China Customs data shows June cotton imports of about 250,000 tons, up significantly year-on-year, adding further supply pressure.
For the near-term outlook, focus on several variables: first, whether state reserve cotton purchase policies will adjust, directly affecting the policy floor; second, the recovery of downstream orders, especially the timing of autumn/winter fabric preparation; third, international cotton price trends, with US cotton weather and export data influencing external direction.