June delivered a lackluster report card for China's cotton textile industry. The sector sentiment index fell to 48.3%, down 1.6 percentage points from May, with all seven sub-indices—covering raw material procurement, production, product sales, inventory, and confidence—below the 50 boom-bust line. This marks two consecutive months of contraction, with the pace accelerating.
More concerning is that this downturn is driven by a triple whammy: seasonal weakness, divergent raw material prices, and a gap in downstream orders. Mills began rapidly building inventory from mid-June, yarn and fabric prices softened, and the business confidence index plunged 4.4 points to 45.0%, a year-to-date low.
Raw material price divergence tightens procurement
The raw material procurement index stood at 48.3%, down 1.9 points month-on-month, reflecting mills' reluctance to stock up during the off-season. Cotton, polyester staple fiber (PSF), and viscose staple fiber (VSF) followed markedly different price trajectories.
Cotton was pressured by a correction in US cotton futures and domestic seasonal weakness. Zhengzhou cotton futures oscillated in a wide range of 15,590–16,440 yuan/ton. Domestic Grade 3128 cotton spot prices averaged 17,113 yuan/ton, down 260 yuan/ton or 1.50% month-on-month. PSF saw a sharper decline: the US-Iran peace memorandum drove oil prices lower, pulling 1.4D direct-spun PSF average prices to 7,611 yuan/ton, down 416 yuan/ton or 5.18%. VSF bucked the trend, with mainstream fiber averaging 14,092 yuan/ton, up 57 yuan/ton or 0.41%, supported by strong pre-sales and stable mill quotes.
This divergence reshaped procurement strategies. The cotton purchase volume index rebounded 2.1 points to 49.4% but remained below 50, indicating only limited restocking at lower prices. The non-cotton fiber purchase index fell further to 48.1%, down 1.9 points, as mills grew cautious on PSF and VSF. The raw material inventory index dropped to 47.9%, with most mills adopting a just-in-time strategy to avoid capital tie-up.
Production contraction meets inventory buildup
The production index fell to 48.9%, down 1.4 points, with yarn output declining most sharply—plunging 3.1 points to 47.6%. Fabric output also dropped 2.3 points to 49.1%. The equipment operating rate index held at 49.5%, unchanged from May but below 50 for two consecutive months, suggesting production cuts are a structural adjustment rather than a short-term response.
Yet production cuts failed to prevent inventory accumulation. The product inventory index fell to 47.7%, down 0.3 points—a lower reading means faster buildup. Yarn inventory stood at 47.7%, down 1.0 point; fabric inventory at 47.8%, up 1.0 point. Both remained in contraction territory, indicating passive stockpiling across the supply chain.
Sales data confirmed the challenge. The product sales index dropped 3.3 points to 48.9%. 32-count pure cotton combed yarn averaged 23,407 yuan/ton, down 332 yuan/ton; pure cotton grey fabric averaged 7.38 yuan/meter, down 0.05 yuan/meter. While the yarn sales volume index edged up 1.2 points to 48.9%, it remained below 50, suggesting price cuts had limited impact. Fabric sales volume index rose to 50.2%, barely above the boom-bust line, likely driven by short-term discount-driven orders.
Business pressure and collapsing confidence
The business operation index fell to 49.4%, down 0.6 points, with revenue index at 48.6% (down 0.7 points) clearly in contraction. The profit index remained at 50.2% but fell 0.5 points, indicating margins are being squeezed.
Most alarming was the business confidence index—45.0%, down a staggering 4.4 points from May, the largest drop among all sub-indices. This reflects widespread pessimism about Q3 demand. Most orders were completed by mid-June, leaving only essential restocking. Weaving mills reported weaker order intake than in May, with some small and medium enterprises already planning maintenance shutdowns or reduced production in July-August.
Macroeconomic context adds to the caution. The JPMorgan Global Manufacturing PMI stood at 52.2% in June, above the boom-bust line for 11 consecutive months but down 0.4 points, signaling a slowdown in global recovery. In contrast, China's manufacturing PMI rose to 50.3%, returning to expansion. This divergence suggests that China's near-term improvement is more policy-driven than consumption-led—bad news for cotton textiles, which rely on end-user demand.