The price gap between domestic and imported cotton is undergoing a notable rebalancing. In late August, the spread between Brazilian cotton under 1% tariff and Xinjiang machine-picked cotton in inland warehouses narrowed to 3,350-3,750 yuan per ton, down 300-500 yuan from mid-month. Though seemingly modest, this shift directly affects import purchasing decisions and domestic cotton pricing logic. As the gap falls from above 4,000 yuan to the 3,000-yuan range, the cost advantage of imported cotton weakens, prompting some mills to reconsider domestic alternatives.
Background
The core driver is the divergence between ICE and Zhengzhou cotton futures. ICE rose last week, lifting foreign offers, but Zhengzhou CF2701, despite breaking through 17,000 and 17,100 yuan, gained much less. Consequently, yuan-denominated import costs rose faster than domestic prices, compressing the spread. Simultaneously, continued reserve sales increased domestic supply, further dampening import competitiveness.
Port quotes from August 22-24 show Qingdao bonded Brazilian cotton M1-5/32 (strength 28 GPT) at 86.5 US cents/lb, with 1% tariff import cost around 14,455 yuan/ton; strength 30-31 GPT at 88.5-89 cents, costing 14,785-14,870 yuan. Under sliding duty, costs are 14,925 and 15,160-15,220 yuan respectively. Australian cotton SM1-5/32 (strength 29 GPT) in Qingdao, Zhangjiagang, and Nantong warehouses is quoted around 97.5 cents/lb.
Inland Xinjiang cotton remains firm. In Henan, Shandong, and Jiangsu-Zhejiang, 3129B/3130B (strength 28-30 CN/TEX) southern Xinjiang machine-picked cotton is quoted at 18,000-18,300 yuan/ton, with basis around 1,500-1,800 yuan. After adjusting for net vs. gross weight settlement, the actual gap between Brazilian and Xinjiang cotton has narrowed from about 4,000 yuan earlier in the month. For buyers, this means an additional 300-500 yuan per ton in hidden costs, eroding processing margins.
Industry Impact
The immediate effect is a slowdown in import contracting. Traders in Qingdao, Zhangjiagang, and Shanghai report that dollar basis for bonded cotton and shipments remained stable despite higher ICE, indicating sellers are not eager to cut prices. This standoff reflects divergent views: traders believe high-quality resources justify premiums, while mills focus on immediate cost pressure.
More notably, basis within port inventories is widening. Over the past two weeks, high-quality Brazilian, Australian, and US cotton have seen their premium over lower-grade, less spinnable resources expand, reinforcing the 'good cotton, high price' trend. This underscores mills' rising quality demands and weak demand for low-count yarns and rotor-spun products. For mills producing mid-to-high-end yarns, premiums for quality cotton may strengthen further, while low-grade cotton's bargaining power continues to erode.
For the domestic market, a narrower spread means less pressure from imports on Xinjiang cotton, helping stabilize domestic price expectations. However, reserve sales continue, so total supply remains ample, limiting upside. In the near term, Zhengzhou cotton is likely to trade in a range, with the import-domestic gap hovering around 3,000-3,500 yuan until new crop arrives or import policies adjust.