Cotton Yarn Price Rise Lags Cotton by 75%: Profit Squeeze Drives Mills in Lanxi to Run Full Tilt

Cotton yarn prices have risen only a quarter as much as cotton prices—this is the stark reality facing mills in Lanxi, Zhejiang. A July 21 industry survey shows that local spinning and weaving factories maintain high capacity utilization during the traditional off-season, but sluggish yarn price adjustments and poor cost pass-through have squeezed industry profits to the breaking point.

Background

Lanxi, a major cotton textile cluster, is often seen as a bellwether for sector health. Despite the off-season, mills are running at elevated capacity and actively participating in state reserve cotton auctions. Companies admit the goal is not profit but maintaining production continuity, stabilizing customer orders, and protecting market share.

Since the start of the year, cotton yarn prices have risen only about 1,000 yuan per ton, far below the increase in cotton prices. This has eroded processing margins and distorted the industry's profit model. Under normal conditions, mills rely on stable processing fees, but in today's volatile market, firms that focus solely on production without inventory arbitrage are losing money.

Industry Impact

This profit inversion highlights the imbalance in supply chain bargaining power. As the weak link, mills struggle with delayed price adjustments and poor cost pass-through. Local spinners report that most pure-cotton yarn producers are unprofitable or loss-making; only those blending fibers manage to break even.

Participating in state reserve auctions has become a key cost-control strategy, offering a price advantage over spot cotton. However, mills expect further supply-demand pressure—new spinning capacity will come online by year-end, and its full release in 2027 will boost domestic cotton consumption, intensifying the imbalance.

In the near term, the market is expected to remain strong until late August, supported by high capacity utilization and positive sentiment from reserve auctions. But over the medium to long term, the conflict between capacity expansion and margin compression will sharpen.

Practical Recommendations

For Buyers - Monitor market inflection points around late August; if cotton prices correct, lock in raw material costs for autumn/winter orders. - Prioritize suppliers that participate in reserve auctions—they have better cost control and delivery reliability.

For Exporters - Capitalize on the current window where yarn price rises lag cotton; increase procurement of regular pure-cotton yarn to lock in costs for export orders. - Track new capacity commissioning schedules and plan raw material reserves for spring 2027 orders ahead of potential supply fluctuations.