On July 9, import cotton prices at China's main ports posted a slight decline, with the international cotton price index (SM grade) dropping 0.61 cents/lb to 90.92 cents/lb, equivalent to about RMB 15,226/ton at 1% tariff. Although the move seemed modest, it triggered a 245 yuan/ton drop in the main Zhengzhou cotton contract (2609 contract) on the same day, with open interest falling by 34,680 lots. The loosening at the cost end is rapidly transmitting along the industrial chain, shifting market sentiment from wait-and-see to cautious bearishness.
Price Transmission: From Import to Domestic Cotton The most direct impact of lower import cotton costs is the downward pressure on domestic cotton spot prices. According to public industry data, the SM-grade import cotton price in RMB is now about 700 yuan/ton below the main Zhengzhou contract. This price gap encourages textile mills to favor imported cotton, squeezing demand for domestic cotton. This substitution effect was particularly evident on July 9, as the sharp reduction in Zhengzhou cotton open interest suggests long capital is actively exiting.
The lint market is also under pressure. Weaker import prices mean that support from similar substitutes has diminished, and domestic lint spot prices face downward pressure. Historically, for every 1 cent/lb drop in import cotton prices, domestic lint spot prices typically adjust down by about 80-100 yuan/ton within one to two weeks. With the SM index already down nearly 2 cents/lb from the previous week, the adjustment in the lint market may have only just begun.
Downstream Transmission: Cotton Yarn Cost Support Weakens The weakening upstream raw material prices are spreading to the cotton yarn segment. As a direct product of cotton processing, raw materials account for over 70% of cotton yarn production costs. The simultaneous decline in import cotton and lint prices means that cost support for cotton yarn is loosening. Industry data shows that on July 9, the cotton yarn bull-bear score was only -0.5. Although the magnitude is less than the -1 for cotton and lint, the signal is clear: downstream order parties are adopting a wait-and-see approach, reluctant to stockpile at current prices.
For textile mills, this means inventory management needs to become more cautious. If import cotton prices continue to weaken, cotton yarn ex-factory prices may face downward pressure, further squeezing profit margins. This is especially true for coastal spinning mills that rely heavily on imported cotton, where cost advantages are turning into price competition risks.
Regional Industrial Clusters: North-South Divergence Intensifies From a regional perspective, the impact of this price fluctuation varies across different industrial clusters. Northern clusters like Shandong and Jiangsu, which use a higher proportion of domestic cotton, face relatively less direct impact from import cotton declines in the short term. However, they need to be wary of inventory devaluation risks if domestic cotton prices follow suit. Southern clusters like Guangdong and Fujian, where imported cotton accounts for over 60% of usage, theoretically benefit from lower costs, but weak downstream orders prevent this advantage from translating into actual profits.
Feedback from Keqiao Light Textile City and Shengze Oriental Silk Market indicates that since July, cotton yarn and grey fabric sales have slowed, with weaving mill operating rates hovering around 70%, lower than the same period last year. If import cotton prices continue to decline, grey fabric quotes will be further compressed, squeezing trader margins.