The divergence in cotton yarn market signals speaks louder than the price index itself. Since late July, several inland spinning mills have offered discounts to free up cash, pressuring medium-low count ring-spun and rotor-spun yarns, while 60S and above high-count combed and carded yarns have held their ex-factory prices almost unchanged. This pattern of 'low-end price competition, high-end profit defense' reveals that the current off-season is not a blanket downturn but a structural demand mismatch—conventional varieties are severely over-supplied, while differentiated products retain pricing power.
Market Background
Since July, Zheng cotton futures have entered a weak correction channel, with spot markets weakening in tandem. The traditional off-season, compounded by delayed terminal orders, has left the entire chain from ginners to garment processors without rigid demand support. National cotton market monitoring data shows a marked slowdown in commercial cotton inventory drawdown in July, with textile mills adopting a hand-to-mouth procurement strategy and showing little willingness to build inventories.
All segments have responded similarly: cut inventories and preserve cash flow. Most large and medium-sized spinning mills are finishing up earlier orders and, to maintain operating rates, have been forced into price-cutting competition. Downstream weaving mills, dealers, fabric and garment makers, meanwhile, stick to a low-stock, thin-margin approach, buying only what they need and avoiding hoarding. This tug-of-war between upstream and downstream has intensified cotton yarn market competition, squeezing the profitability of small and medium-sized spinners and sharply increasing operational difficulty.
Notably, large mills in Xinjiang maintain operating rates as high as 90%, with production continuing, but finished goods sales have slowed and receivables risk is rising. The underlying causes are multiple: volatile cotton prices, low-priced competition from inland mills, and cooling demand from coastal weavers and intermediaries. Xinjiang's rigid capacity release further exacerbates the supply-demand imbalance in medium-low count yarns.
Industry Impact
The pressure is now propagating downstream to dyeing and finishing. Since the start of 2026, dye prices have surged by over 65%, with auxiliaries and labor costs also rising, sharply increasing processing costs for dyeing mills. Forced by cost pressures, many dyeing factories in Jiangsu and Zhejiang have raised processing fees—large mills in Shaoxing have increased knit dyeing fees by RMB 0.5 per kilogram and woven fabric fees by RMB 0.2 per meter.
The increases seem modest, but with weak terminal consumption and industry-wide price wars, weaving and garment enterprises cannot quickly absorb upstream cost hikes. The blocked cost transmission means the dyeing mills' price increases are more defensive than proactive, yielding limited actual profit improvement. For companies with a high share of export orders, higher dyeing fees may also erode price competitiveness, further shrinking order intake.
Looking at profit distribution across the chain, a 'squeezed middle, divergent ends' pattern emerges: upstream cotton prices fluctuate wildly, downstream demand is weak, and mid-stream spinning and dyeing are forced to absorb pressure from both sides. The firmness of high-count yarns suggests that when overall demand is slack, technical barriers and product differentiation remain the core bulwark against price wars.