China's cotton textile chain is undergoing a structural reshaping driven by domestic-international price spreads. In the first half of 2026, China's textile and apparel exports remained stable, with particularly strong performance to the U.S. market, while orders in traditional exporting countries like Vietnam and Bangladesh contracted sharply, accelerating the reshuffling of regional competition. At the same time, the widening price gap between domestic and international cotton has triggered a surge in imported yarn and made fiber substitution more economically viable. These three variables together signal that the industry has left the era of homogeneous cycles and entered a phase of deep differentiation.
Trade Restructuring: Brazilian Cotton Becomes Top Source, Southeast Asian Demand Weakens
Global cotton trade flows are undergoing a fundamental shift. According to customs data, Brazilian cotton has replaced U.S. cotton as China's largest import source, driven by its price advantage and supply stability. In contrast, Vietnam, Bangladesh, and other major Southeast Asian textile countries have seen a continued decline in cotton import willingness, with import volumes falling year-on-year and finished garment exports dropping sharply. The core driver behind this divergence is the widening domestic-international cotton price spread: international prices remain weak while Chinese prices stay firm, prompting domestic mills to increase imports while eroding the cost advantage of Southeast Asian spinners.
Yarn trade is also showing a two-way flow pattern. Southeast and South Asian countries export large volumes of low-cost yarn to China, impacting the mid-to-low-end market, while China leverages its integrated weaving and garment manufacturing chains to fulfill end orders, exporting finished textiles globally. This division further amplifies the complementary yet competitive relationship between Chinese and foreign industries, meaning domestic mills face a more complex cost and competitive environment on the raw material side.
Substitution Accelerates: Fiber Erodes Cotton Share, Yarn-Cotton Spread Widens
Price divergence is not limited to the domestic-international gap but also extends to the relative pricing of yarn and synthetic fibers. The yarn-cotton spread and cotton-polyester spread both widened in the first half, improving the economics of substituting cotton with man-made fibers. For downstream fabric producers, amid weak end demand and cost sensitivity, the cost advantage of synthetics is subtly altering raw material usage—not only squeezing the market share of pure cotton yarn but also forcing cotton mills to accelerate product upgrades and differentiation.
Industry data shows that domestic spinning activity has slowed, and downstream weaving demand remains weak, dragging down raw material consumption. The influx of low-cost imported yarn further compresses profit margins for small and medium-sized mills. This means that the old model of scale expansion and price competition is no longer viable; enterprises must find new paths through raw material optimization and product iteration.
New Crop Expectations and the Second-Half Turning Point: The Dual Game of Production Cuts and Demand Recovery
As the traditional off-season winds down, the second half will bring a new inflection point. Global cotton production expectations are being revised downward, and the expectation of a reduced new crop is gaining momentum, providing potential support for cotton prices. At the same time, autumn/winter end-order placements are gradually starting, and demand recovery is expected to drive destocking and capacity utilization improvements across the chain.
However, caution is warranted. The differentiation in price spreads, trade flows, and product structures will persist. Domestic mills face real pressures from high raw material costs, intense competition in low-end products, and insufficient off-season demand, while overseas textile markets remain weak and Southeast Asian growth is slowing. The industry has entered a cycle of structural divergence.