Port cotton inventories have climbed back above 600,000 tons, but this number should not be read as a simple oversupply signal. As of July 25, total cotton stocks at China's main ports were assessed at 610,000–620,000 tons. More notably, domestic-foreign spreads have remained broadly stable over the past week, yet trading activity for different origins has diverged significantly. This points to a structural adjustment within the supply chain rather than a one-way buildup of inventory pressure.
Structural Features of the Inventory Rebound
The rebound is driven by multiple factors. On one hand, arrivals of 2025/26 Australian cotton have been increasing steadily, becoming a major contributor to the increase. On the other hand, the launch of central reserve cotton sales on July 20 has also added to market supply in the short term. Stocks of Brazilian, U.S., Turkish, Kazakh, West African, and Indian cotton all rank high, creating a multi-origin inventory landscape.
Feedback from traders indicates that despite the overall increase, liquidity varies significantly by origin. Australian cotton, benefiting from concentrated new arrivals and quality alignment with high-count yarn demand, has seen relatively active inquiries and transactions. In contrast, spot trading for Brazilian and U.S. cotton, traditionally dominant varieties, has slowed notably compared to early-to-mid July. This divergence has directly influenced the pricing logic for each variety's basis.
The Game Behind Stable Spreads
Over the past week, both FOB/CNF/CIF quotes and renminbi-denominated spot basis for cleared cotton at ports have remained relatively stable. However, offer prices have been adjusted repeatedly in response to fluctuations in ICE and Zhengzhou cotton futures, reflecting divergent views between buyers and sellers on future price direction. Taking specific varieties as examples: the basis for cleared Brazilian cotton M 1-5/32 (strength 28-30 GPT) at Qingdao port has held at 1,850–2,120 yuan/ton, while Mexican cotton SM 1-1/8 (strength 29 GPT) has a basis of about 1,800–1,850 yuan/ton. In contrast, Kazakh cotton SLM "double 28" (micronaire 4.5–5.2) has a basis of only around 300 yuan/ton, widening the price gap with Australian and Brazilian cotton.
This basis structure suggests that the market is re-evaluating the cost-effectiveness of different origins. For textile mills, procurement decisions can no longer rely solely on total inventory figures; they must precisely match the specific yarn varieties and quality requirements. If demand for high-basis Brazilian cotton weakens further, there may be room for negotiation in the near term. Conversely, low-basis Central Asian cotton could emerge as a viable substitute.
Dual Transmission of Policy and Quotas
The launch of central reserve cotton sales is a key policy variable behind the inventory rebound. Reserve releases increase domestic supply elasticity but also partially substitute demand for imported cotton. At the same time, import quotas for the second half of 2026 are gradually tightening, narrowing the procurement window for smaller and medium-sized mills. The combination of tighter quotas and rising port inventories is forcing companies to optimize their raw material inventory management cycles.
According to publicly available industry data, port inventories have been steadily rising since late July, but the composition and turnover rates vary significantly by port. Among major hubs such as Qingdao, Zhangjiagang, and Shanghai, Qingdao has a higher share of Brazilian and U.S. cotton stocks, while Zhangjiagang sees faster turnover for Australian and Indian cotton. This regional divergence requires buyers to tailor their procurement strategies based on geographic location and logistics costs.