The persistent weakness in terminal demand is dragging the cotton textile industry deeper into adjustment. Data for June 2026 reveals a clear slowdown in production and sales across the supply chain, with small and medium enterprises facing particularly acute pressure.
Production Contraction and Structural Divergence
Mill operations weakened broadly in June, with new orders declining and a clear divergence emerging within the industry. Large backbone mills maintained essential production, but small and medium mills, burdened by inventory buildup and negative margins, saw increased output cuts and shutdowns. Pure cotton yarn output fell 1.5% month-on-month, while pure cotton fabric output dropped even more sharply by 3.2%. Notably, the combined share of blended and chemical fiber yarns rose 0.5 percentage points to 49.4%, indicating mills are adjusting product mix to cope with weak pure cotton demand. This shift reflects downstream buyers' extreme pursuit of cost-effectiveness and implies a weakening bargaining position for the pure cotton chain.
Stalemate in Cotton Yarn Prices and Import Pressure
Cotton yarn prices in June showed a typical stalemate. Domestic 32-count pure cotton yarn averaged 23,336 yuan/ton, up only 0.25% month-on-month, while imported 32-count yarn averaged 22,843 yuan/ton, down 0.49%. The price gap narrowed from about 600 yuan/ton in May to 493 yuan/ton, highlighting the improved cost advantage of imported yarn and exerting sustained pressure on domestic mills. With weak downstream demand limiting pricing power, most mills resorted to promotional discounts to maintain cash flow. The Zhengzhou Cotton Exchange main contract twice fell to around 15,600 yuan/ton, which stimulated some spot purchases but failed to reverse the overall bearish market sentiment.
High Finished Goods Inventories and Cash Flow Strain
The core bottleneck is sluggish offtake at the terminal. Weaving and garment factories lack concentrated restocking, leading to slower sales and rising inventories. By end-June, yarn inventories reached 23.1 days, up 6.3 days month-on-month; fabric inventories hit 31.7 days, up 4 days. The monthly yarn sales rate was only 71%, down 1 percentage point, meaning nearly 30% of output remained unsold. High inventories have tied up significant capital, forcing most mills to deepen price cuts in late June, making low-price sales for cash recovery the industry norm. While this 'price-for-volume' strategy eases some inventory pressure, it further compresses already thin margins.
Export Rebound Fails to Offset Weak Domestic Demand
June textile and apparel export data showed a bright spot, with both month-on-month and year-on-year growth. According to the General Administration of Customs, June exports reached $29.271 billion, up 7.2% YoY and 14.3% MoM. This growth was driven by concentrated delivery of earlier overseas orders and a temporary improvement in the China-US trade environment. However, cumulative apparel exports in the first half of 2026 still fell 0.7% YoY, indicating limited external support. Weak domestic demand remains the core pressure, and with autumn/winter orders yet to start, the industry will likely remain weak in the short term.