In July, the domestic cotton market showed a classic tug-of-war between expectations and reality: reserve cotton releases were fully subscribed, but mills purchased mainly on a need basis; domestic prices peaked then fell, while downstream finished goods inventories accumulated. According to the China Cotton Association, national yarn output in July was 1.814 million tons, down 5.9% month-on-month and 2.2% year-on-year, while Xinjiang's output rose 17% year-on-year to 321,000 tons. This contrast highlights the ongoing shift of spinning capacity to Xinjiang and signals subtle changes in profit distribution along the chain during the off-season.
Market Supply and Demand: Price Game under Tight Balance
Since the start of reserve cotton releases on July 20, all listed lots were sold, with cumulative sales reaching 80,200 tons by July 31. The average transaction price was 17,253 yuan/ton, equivalent to 17,871 yuan/ton on a 3128B basis, with an average premium of 1,638 yuan/ton. Early premiums were higher, but as releases continued, mills became more rational and premiums narrowed. This suggests limited acceptance of high-priced raw materials, with restocking driven by production needs rather than speculative hoarding.
International cotton prices strengthened, with the Cotlook A index averaging 88.9 US cents/lb, up 3% month-on-month. After applying a 1% tariff, the import price was 2,808 yuan/ton lower than domestic prices, and the spread narrowed by 221 yuan from the previous month. The USDA August report cut global ending stocks by 326,600 tons, lowering the stocks-to-use ratio to 56.7%, intensifying supply tightness expectations. This means imported cotton remains price-competitive despite reduced cost advantage, exerting continued pressure on domestic prices.
Industry Impact: Regional Divergence and Inventory Transmission
On the production side, the China Cotton Association forecasts planted area at 43.066 million mu, down 3.9% year-on-year; yield at 166.1 kg/mu, up 0.4%; and total output of 7.153 million tons, down 3.5%. Xinjiang's output is expected at 6.857 million tons, down 3.5%, with yields flat. Inland regions show divergence: the Yellow River basin yield is up 2.6%, while the Yangtze basin, affected by excessive rainfall, is projected to see a 14.3% decline in output. Regional differentiation is evident, with Xinjiang's scale advantage strengthening while inland cotton area continues to shrink.
Commercial inventories continued to decline, reaching 2.5 million tons at end-July, down 19.4% month-on-month but up 14.1% year-on-year. Industrial inventories rose 2.3% month-on-month to 888,000 tons, down 0.8% year-on-year. Mills maintained low raw material inventories during the off-season, but some replenished through reserve auctions. Meanwhile, cotton yarn prices failed to follow cotton gains; 32s combed yarn averaged 23,328 yuan/ton, down 0.04% month-on-month but up 13.33% year-on-year, squeezing margins. On exports, July textile and apparel shipments reached $28.79 billion, up 7.6% year-on-year but down 1.6% month-on-month. Cotton product exports fell 7.3% month-on-month to $5.99 billion, with declines of 11.9% to the EU and 4.2% to the US, highlighting the diversion effect from Southeast Asia.