The imported cotton market is undergoing a structural adjustment driven by shifts in supply pace and quality composition. Over the past week, as ICE cotton futures edged higher, the USD-based basis for Brazilian, US, and West African cotton at major Chinese ports has generally softened. At the same time, arrivals of the 2025/26 Australian cotton crop have accelerated significantly, reshaping the variety mix in port inventories.
Basis Weakens Under Supply Pressure and Futures Strength
According to traders in Qingdao and Zhangjiagang, the bonded basis for Brazilian cotton M 1-5/32 (strength 29-30 GPT, 2024/25 crop) has dropped to 2.75-3.00 cents/lb against the ICE December 2026 contract. The 'double 30' grade is offered at a flat price of 85 cents/lb. Under the 1% tariff, the landed cost is approximately RMB 14,250/mt. In contrast, the same quality cleared Brazilian cotton carries a RMB basis of RMB 2,050-2,150/mt against the CF2609 futures contract, translating to a market price of RMB 18,175-18,275/mt. The spread between imported and domestic prices stands at RMB 3,385-3,485/mt, indicating a significant cost advantage for imported cotton.
US cotton basis has seen a larger downward adjustment. Traders note that while the USD basis for both 2024/25 and 2025/26 US cotton has softened notably, the RMB basis for cleared stock has only declined by RMB 20-30/mt, exerting limited impact on spot sales. This reflects two key observations: first, the basis weakening is more a passive correction to rising futures than a demand-driven move; second, liquidity in port-area RMB spot remains thin, with buyers showing limited appetite for higher-priced lots.
Australian Cotton Arrivals Surge: Opportunities and Risks from Quality Dispersion
Since early July, arrivals and warehouse entries of the 2025/26 Australian cotton crop have accelerated sharply. Early-crop lots include some with 1-3/32 inch length and low micronaire values, which carry relatively low basis and have attracted interest from intermediate traders and some mills. The current basis for June/July shipment Australian SM 1-5/32 (strength 29 GPT, CIF) is around 12.5 cents/lb, while cleared Australian SM 1-5/32 (strength 30-32 GPT) commands a RMB basis of RMB 3,450-3,500/mt, over RMB 1,300/mt above comparable Brazilian cotton.
What does this mean for the market? First, the 2025/26 Australian crop is expected to be large, and early-season quality issues are normal, but low-micronaire lots may limit substitution in high-count combed yarns. Second, the premium of Australian over Brazilian cotton remains historically high; if later Australian lots show improved quality and supply continues to flow, this premium could narrow. For buyers, the current value proposition of Australian cotton is not compelling, but the low-micronaire lots present potential bargains.
Domestic vs. Imported Spread: Can Cost Advantage Drive Actual Purchases?
The current spread between the 1% tariff landed cost of Brazilian cotton (~RMB 14,250/mt) and the domestic spot price of similar quality (~RMB 18,175/mt) approaches RMB 4,000/mt, theoretically offering mills a massive cost-saving opportunity. However, this advantage has not translated into a surge in port transactions. Key reasons include:
- Weak downstream textile demand, leading to slower inventory turnover and mostly hand-to-mouth buying.
- RMB exchange rate volatility adds uncertainty to import costs, prompting some mills to stay on the sidelines.
- The limited adjustment in cleared stock basis means the actual transaction price still lags behind the theoretical import cost advantage.