On July 24, imported cotton prices at Chinese main ports posted an extremely modest uptick: the SM index rose by 0.12 cents per pound and the M index by 0.13 cents per pound. Under a 1% tariff, the landed costs in RMB increased to 15,332 yuan/ton and 14,998 yuan/ton respectively. In a market accustomed to multi-cent swings, this sub-0.2% increase seems negligible, yet it offers a telling snapshot of market sentiment amid a global supply-demand tug-of-war and cautious inventory management by Chinese mills.
Underlying Drivers of the Price Uptick
The immediate trigger was a narrow fluctuation in ICE cotton futures, but the deeper cause lies in marginal supply tightening. The USDA's July supply-demand report trimmed global production forecasts for 2025/26, mainly due to persistent drought in Texas and lower planted acreage in India. Meanwhile, China, the world's top cotton importer, sees high overall port inventories but a tight supply of high-grade cotton (e.g., SM), providing floor support for prices.
Currency factors also play a role. The RMB weakened slightly against the USD in late July, directly raising the RMB-denominated duty-paid cost. Under the 1% tariff, the landed price increased by about 20-30 yuan/ton compared to the previous day. For buyers, this means even if international prices remain flat, actual mill-delivered costs are passively rising.
Transmission and Divergence Along the Supply Chain
The impact on spinning mills is not linear. Domestic 32s carded cotton yarn is quoted at 21,800-22,500 yuan/ton, flat from early July, but actual transactions involve 200-300 yuan/ton discounts. Mills report that end-user orders are mostly short-run and small-lot, with heavy price pressure on large orders, making it difficult to pass on raw material cost increases. This 'rising fiber, stable yarn' dynamic is squeezing spinning margins.
Weaving is more complex. Clusters in Nantong and Shengze maintain loom utilization at around 70%, but grey fabric inventory days have climbed above 30. Weavers adopt a 'hand-to-mouth' procurement strategy for yarn, avoiding large raw material stocks. If cotton prices continue to creep up, weavers may reduce utilization or shift to polyester blends to hedge cost pressure.
Traders and Futures Market Signals
Import cotton traders are acting as 'probe players' in this uptick. With the spread between domestic and imported cotton narrowing to within 500 yuan/ton, some traders are testing downstream acceptance by raising offers. However, port transaction data shows that daily import cotton offtake in the fourth week of July fell about 15% from June, indicating persistently weak buying appetite.
On the futures front, Zhengzhou Cotton's main contract trades in a narrow 14,500-14,800 yuan/ton range, with slightly increased open interest but shrinking volume, suggesting both bulls and bears lack the catalyst to break the stalemate. The spot market's modest rise has not triggered futures follow-through, instead widening basis volatility and complicating hedging operations.