The price spread between domestic and imported cotton has widened to its largest in nearly two years. As of July 21, the gap between imported Brazilian cotton (under 1% tariff) and Xinjiang machine-picked cotton in inland warehouses reached 3,900-4,300 RMB per ton, expanding further from early July. This marks a 24-month high and significantly compresses the cost advantage that imported cotton once held.
For textile mills relying on imported fiber, this widening spread is rewriting procurement logic: should they continue betting on imported cotton's price competitiveness, or shift toward domestic cotton to conserve scarce import quotas?
Three forces behind the spread
The spread widening is not driven by a single factor. First, Zhengzhou Cotton Exchange's CF2609 contract has been range-bound at 15,700-16,200 RMB/ton, while ICE Cotton No.2 2612 contract has retreated, creating a divergence that directly expands the spread base. Second, the 2026 central reserve cotton sales include a high proportion of 2019-2021 imported cotton, increasing supply pressure on RMB-denominated port resources. Traders have cut RMB basis by 50-100 RMB/ton to accelerate destocking. Third, import quota availability remains tight, narrowing mills' access to bonded cotton under 1% tariff and pushing demand toward RMB spot cargoes, further depressing their prices.
Notably, while RMB basis has softened, USD basis has stayed firm. Traders in Qingdao, Shanghai, and Zhangjiagang report that USD-denominated basis for bonded, prompt, and forward cargoes remains stable, with offers fluctuating with ICE futures. This suggests traders are still confident in holding high-grade cotton, especially 2025/26 US cotton and current-season Brazilian cotton, where supply is tight.
Supply structure imbalance: premium grades scarce, Australian cotton fills in
Behind the headline spread lies a deeper structural imbalance in cotton supply. On one hand, 2025/26 US cotton is already overcommitted by nearly 6%, and current Brazilian cotton sales are nearing completion. High-grade, high-quality stocks at ports are insufficient, explaining why USD basis remains unyielding: traders sitting on premium inventory see no urgency to cut prices.
On the other hand, arrivals of 2025/26 Australian cotton have increased significantly since mid-July. This influx is reshaping port inventory composition, but overall offtake remains slow due to quota constraints and weak domestic demand. Port stocks have stopped declining and are beginning to edge higher, meaning even with new supply, digestion cycles are lengthening.
For buyers, the market shows clear structural divergence: high-grade US and Brazilian cotton is scarce and price-inelastic, while Australian cotton and lower-grade resources face greater negotiation room.
Domestic cotton's competitive window
The widening spread is a double-edged sword for domestic cotton. In the near term, imported cotton's relative cost increase theoretically favors domestic sales. Inland warehouse quotes for Xinjiang machine-picked cotton 3129B/3130B in Henan, Shandong, Jiangsu, and Zhejiang range from 17,685-17,915 RMB/ton, with basis at 1,720-1,950 RMB/ton. Compared with imports, domestic cotton's price disadvantage is narrowing.
But the catch is that downstream demand has not revived. The domestic market remains sluggish, with mills purchasing only for immediate needs and showing little willingness to build inventory. Even if domestic cotton becomes more price-competitive, this advantage may not translate into actual transactions without a genuine recovery in end-use orders.
Moreover, ongoing reserve sales add supply elasticity. The high share of imported cotton in 2026 reserve releases both supplements RMB port resources and creates substitution pressure on domestic cotton.