The price spread between imported cotton and Xinjiang cotton is widening at an unusual pace. As of July 21, the cost of Brazilian cotton under the 1% tariff was approximately 13,835-14,000 yuan per ton, while machine-picked Xinjiang cotton (grade 3129B/3130B) in inland warehouses was quoted at 17,685-17,915 yuan per ton—a premium of 3,900-4,300 yuan per ton, a two-year high. For mills, this means each ton of imported cotton replacing Xinjiang cotton could theoretically save nearly 4,000 yuan in raw material costs.
The widening gap has two main drivers: ZCE cotton futures (CF2609) are consolidating in the 15,700-16,200 yuan/ton range, while ICE cotton futures (December 2025 contract) continue to decline. Domestic cotton prices remain relatively firm while external prices weaken, pushing import costs further down. More importantly, traders have actively cut RMB-denominated basis by 50-100 yuan/ton, signaling rising willingness to clear stocks—driven by increased port arrivals and slower quota consumption.
Structural contradictions behind the premium
The current price structure is not a simple arbitrage window but the result of multiple intertwined factors. On the supply side, 2025/26 US cotton is over 6% sold, Brazilian cotton sales are nearing completion, and high-grade cotton at ports remains tight. This explains why traders hold firm on USD-denominated basis—scarcity of bonded foreign cotton supports pricing power.
But the picture is different for RMB-denominated resources. Since mid-July, 2025/26 Australian cotton arrivals have increased significantly, combined with the launch of 2026 central reserve cotton sales—where 2019-2021 imported cotton accounts for a high proportion—RMB resource supply has expanded noticeably. Quota constraints limit import clearance, while reserve sales divert some demand, causing port inventories to stop declining and rebound. Traders are forced to cut prices to move volume.
This "USD firm, RMB weak" divergence reflects a core bottleneck: quota scarcity is becoming a hard constraint on imported cotton circulation. Traders with quotas can enjoy the low-price import cotton dividend, while those relying on sliding-duty or general trade channels face import costs 700-800 yuan/ton higher, significantly compressing actual arbitrage space.
Supply chain transmission: Mill procurement logic shifts
The widening price gap is materially affecting downstream mill procurement decisions. For 32-count yarn, the comprehensive cost of spinning with imported cotton is about 3,500-4,000 yuan/ton lower than with equivalent domestic cotton, directly changing the pricing anchor for cotton yarn. Some coastal weaving mills have already adjusted their cotton blending ratios, raising imported cotton usage from the typical 30% to 40%-45%.
But procurement pace is not smooth. Quota tightness is the biggest bottleneck—import cost advantage under 1% tariff quotas is clear, but quotas are hard to obtain; under sliding-duty tariffs, import costs are still lower than domestic cotton but the advantage narrows to within 1,500 yuan/ton. This means the real beneficiaries of the price spread are large mills and traders with sufficient quotas, while small and medium enterprises face a "can see but cannot touch" dilemma.
Another variable worth watching is persistent weakness in the domestic market. Cotton yarn and grey fabric orders have not improved significantly despite lower raw material costs, and terminal apparel consumption recovery is weaker than expected. This makes mills more cautious in procurement—preferring smaller, phased purchases rather than bulk stocking despite the large price gap. Sluggish port clearance data confirms this trend.
Possible paths for price gap convergence
Future price gap direction depends on three key variables. First, ZCE cotton trends. Domestic prices are relatively firm partly due to 2025/26 Xinjiang cotton production reduction expectations and ginners' high holding costs. But if reserve sales continue to increase volume and downstream demand remains weak, ZCE cotton faces downside risk.
Second, where is the bottom for ICE cotton? Recent weak US cotton export data and slowing global textile demand limit upside potential. However, US cotton oversold and Brazilian cotton supply tapering provide support. If ICE cotton stabilizes and rebounds, import costs will rise, narrowing the premium.
Third, quota policy direction. If additional sliding-duty quotas are issued in H2, significant import demand will be released, port inventory digestion will accelerate, and trader pricing power will strengthen. Conversely, if quotas remain unchanged, RMB resources will continue to face pressure, and the price gap may stay high or widen further.