The price spread between domestic and imported cotton has narrowed to around 3,000 yuan per ton, eroding the cost advantage of imported cotton. Feedback from major ports such as Qingdao, Zhangjiagang, and Wuhan indicates that since late July, the basis for bonded cotton has remained stable, but the rebound in ICE futures and the correction in Zhengzhou cotton futures have directly compressed the profit margin for imports under the 1% tariff and sliding-quota tariff. For mills relying on imported cotton, this means a thinner cost cushion and a need to recalibrate purchasing schedules.
Background
Specific quotes on August 3-4 show Qingdao warehouse bonded 2024/25 Brazilian cotton M 1-5/32 (strength 30 GPT) at a net-weight one-price of around 83 US cents/lb, with a 1% tariff import cost of 13,880 yuan/ton and a sliding-quota tariff cost of 14,545 yuan/ton. Meanwhile, inland warehouse Xinjiang cotton 3129B/3130B (strength 29-30 CN/TEX) is quoted at 17,300-17,600 yuan/ton. Even after accounting for the difference between net and conditioned weight settlement, the 1% tariff Brazilian cotton is still 3,600-4,000 yuan/ton cheaper than Xinjiang cotton, but this advantage has narrowed by about 300 yuan/ton since late July. The direct driver is the divergence between ICE futures rebound and Zhengzhou cotton's continuous decline, gradually eroding the discount advantage of imported cotton.
Meanwhile, high-grade quality cotton stocks at ports are relatively scarce, except for 2025/26 Australian cotton. Brazilian and US cotton batches are not abundant. Combined with tight supply of 1% tariff and sliding-quota tariff quotas, the pace of import clearance has slowed noticeably. This is not a demand issue but a structural supply constraint—quotas are a hard ceiling, and inventory structure determines the quality of available supply.
Industry Impact
The narrowing spread affects the supply chain in layers. For spinning mills, the price gap between imported and Xinjiang cotton directly determines blending costs. The current 3,600-4,000 yuan/ton gap remains attractive, but the narrowing trend implies that profits from earlier locked-in exchange rates or basis may be compressed. For traders, stable basis but rising costs increase the risk of holding inventory, especially for those who purchased bonded cotton at high prices in late July.
More noteworthy is the subsequent effect of reserve cotton sales. Some cotton enterprises predict that as the 2026 central reserve sales continue, with a high proportion of US and Brazilian cotton, the supply pressure on high-quality imported cotton will gradually ease. This suggests that the spot basis for cleared Brazilian, US, and Australian cotton may see a correction—a potential opportunity for buyers, but a risk of inventory depreciation for holders.
Regionally, inland warehouse quotes for Xinjiang cotton in Henan, Shandong, and Jiangsu remain firm, indicating no loosening in domestic supply. As imported cotton becomes less cost-effective, some orders may shift back to Xinjiang cotton, supporting domestic prices but potentially further narrowing the spread, creating a negative feedback loop. Foreign trade enterprises should pay close attention to exchange rate and tariff policy changes, as the sliding-quota tariff cost has risen to 14,545 yuan/ton, only about 2,800 yuan/ton away from Xinjiang cotton, making it more sensitive.