On July 9, imported cotton quotes at China's main ports declined slightly, with the international cotton price index (SM) falling to 90.92 cents/lb, equivalent to a port delivery price of RMB 15,226/ton under the 1% tariff; the M-grade index similarly dropped to 88.99 cents/lb, corresponding to a delivery price of RMB 14,907/ton. Though the decline appears modest, it triggered a chain reaction in the futures market: the same day, the main Zhengzhou Commodity Exchange cotton contract (2609) closed at RMB 15,930/ton, down 245 yuan/ton, with open interest plummeting by 34,680 lots. The simultaneous decline in price and open interest suggests that long positions are actively exiting, and market sentiment has shifted from wait-and-see to caution.
Quota Games and Narrowing Domestic-Foreign Spreads
The weakness in imported cotton prices stems from the dual influence of quota policy and global supply-demand expectations. The 2026 sliding-duty cotton import quota was released in June, with total volume unchanged from last year, but actual utilization by enterprises has been slow—some traders report that the narrowing domestic-foreign price spread is eroding the cost advantage of imported cotton. For SM-grade cotton, the converted RMB delivery price of RMB 15,226/ton leaves a spread of only about 700 yuan/ton with the main Zhengzhou contract, the narrowest in nearly six months. When import costs converge with domestic spot prices, textile mills prefer to first digest bonded port inventories rather than place new purchase orders. This means short-term price fluctuations in imported cotton transmit more quickly to the domestic market, creating a linkage effect where external declines pull down internal prices.
On the global supply side, recent rainfall in the main US cotton-producing region of Texas has improved soil moisture, shifting market expectations for the 2026/27 US cotton crop from reduction to increase; meanwhile, the new Brazilian cotton harvest is accelerating, with export quotes also softening. Northern Hemisphere production growth signals, combined with a temporary slowdown in Chinese import demand, are jointly suppressing the pricing center of foreign cotton. For domestic cotton-textile enterprises, this offers an observation window: if the domestic-foreign spread further narrows to within 500 yuan/ton, the substitution effect of imported cotton will significantly strengthen, putting greater destocking pressure on domestic cotton.
From Cotton to Yarn: Transmission Lags and Uncertainty
The decline in imported cotton costs first pressures the domestic ginned cotton spot market. On July 9, quotes for domestic 3128B-grade ginned cotton began to soften, with some Xinjiang cotton processing plants proactively reducing basis by 50-100 yuan/ton to facilitate transactions. However, the downstream cotton yarn sector reflects more complexity—cotton yarn prices recorded only a -0.5 bull-bear score, with a significantly smaller decline than upstream. The logic behind this: yarn mills currently hold raw material inventories mostly purchased at higher prices earlier, so cost support has not yet collapsed; meanwhile, end-user orders have entered the traditional off-season, with weaving mill operating rates remaining at a low 65%-70%, and yarn purchases are mainly for rigid replenishment, lacking momentum for chasing declines or rallies.
Notably, the transmission lag between cotton yarn and cotton prices is typically 2-3 weeks. If imported cotton quotes continue to weaken and the Zhengzhou cotton futures break below the 15,500 yuan/ton threshold, a concentrated downward adjustment in cotton yarn quotes is expected by late July. At that point, procurement strategies for grey fabrics and finished fabrics will also adjust—brand owners and traders may delay large orders, waiting for a lower cost window. This 'buy on rising, not on falling' psychology often amplifies price volatility in the textile supply chain.