Australian Cotton Arrivals Accelerate and Foreign Basis Eases, Import Cotton Market Faces Structural Adjustment

The supply-demand balance in China's imported cotton market is tilting. Despite a recent uptick in ICE cotton futures, holders of foreign cotton have lost pricing leverage as Australian cotton arrivals surge, forcing basis levels for US, Brazilian, and West African cotton in USD terms to ease. For mills tracking the domestic-import spread, this signals a new window for cost optimization.

Foreign Basis Declines, Brazilian Cotton Price Advantage Stands Out

According to public quotes from traders in Qingdao, Shanghai, 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 ICE December 2026). While not drastic, this decline—combined with a flat price of 85 cents/lb for "double 30" grade—reflects a growing desire among holders to destock.

More telling is the domestic-import spread. Under the 1% tariff, imported Brazilian cotton costs about RMB 14,250/ton, while the same grade but duty-paid Brazilian cotton is quoted at RMB 18,175-18,275/ton (basis CF2609). The gap of RMB 3,385-3,485/ton gives bonded cotton a massive cost advantage, likely diverting demand from duty-paid stocks and further squeezing liquidity in the RMB-denominated spot market.

Australian Cotton Arrivals Accelerate, Structural Issues Emerge

Since early July, arrivals of the 2025/26 Australian cotton crop have accelerated sharply, becoming the biggest supply-side variable. However, not all new arrivals are equal. Early shipments include a notable share of 1-3/32" staple and low-micronaire lots, which are unsuitable for high-count yarn spinning. These lots trade at a discount, attracting intermediate traders and smaller mills.

Currently, the CIF basis for 6/7-month shipment Australian cotton SM 1-5/32 (strength 29 GPT) remains around 12.5 cents/lb, far above Brazilian and US cotton. Duty-paid Australian SM 1-5/32 (strength 30-32 GPT) carries a basis of RMB 3,450-3,500/ton, more than RMB 1,300/ton above comparable Brazilian cotton. This premium persists for top grades, but the market is now re-evaluating the value of lower-spec Australian lots.

Operational Implications for Buyers and Exporters

The combination of easing foreign basis and accelerating Australian arrivals is reshaping procurement dynamics. For mills, current bonded Brazilian cotton offers perhaps the best cost advantage in the past year, providing a rare chance to lock in raw material costs for the next 2-3 months. However, the influx of lower-grade Australian cotton may drag down average port inventory quality, demanding stricter inspection.

For Buyers - Prioritize bonded Brazilian cotton M 1-5/32 to exploit the current RMB 3,000+/ton cost advantage over duty-paid stocks. - Differentiate Australian lots: high-strength, long-staple SM grades remain suitable for high-count yarn, but low-micronaire, short-staple lots should be used only for low-count yarn or as blending components. - Monitor ICE December contract: if the basis for Brazilian cotton drops below 2.5 cents/lb, consider phased accumulation.

For Exporters - Promote Brazilian cotton to Southeast Asian clients, leveraging its current cost advantage to win orders. - Given the high basis for Australian cotton, proactively suggest Brazilian or US cotton alternatives in quotes to avoid losing orders due to price. - Watch RMB exchange rate movements: a depreciating RMB would widen the cost gap for duty-paid stocks further, making bonded contracts the safer choice.