July's cotton market displayed a rare 'weak domestic, strong foreign' divergence: domestic prices peaked and fell, while international prices trended higher, narrowing the domestic-international spread to 2,808 yuan per ton. This shift is not a blip but a precursor to a global supply-demand rebalancing. The China Cotton Association projects the 2026/27 global stock-to-use ratio to fall to 56.7%, intensifying supply tightness expectations and reshaping price anchors.
Supply and Demand: Slight Output Dip Meets Resilient Consumption
New crop output is estimated at 7.153 million tons, down 3.5% year-on-year, with Xinjiang contributing 6.857 million tons, a similar decline. Yields are nearly flat at 166.1 kg/mu, up 0.4%, indicating weather disruptions have not fundamentally damaged the crop. However, consumption is projected at 8.92 million tons, up 1.7%, widening the supply-demand gap to 1.77 million tons, which must be filled by imports and reserve releases. Imports are expected at 1.62 million tons, up 1.3%, while reserve releases serve as a key short-term supply adjustment tool.
Notably, 2025/26 imports have been revised up to 1.6 million tons, a 51.9% surge, reflecting heightened reliance on imported cotton. Australian cotton accounted for 59.8% of imports, followed by Brazil at 18.8% and the US at 6.7%, underscoring supply source diversification. This stems from rigid demand for high-grade cotton, as evidenced by the premium paid for imported reserve cotton—averaging 1,638 yuan/ton, with a high of 19,000 yuan—confirming structural shortages.
Price Transmission Blockage: Profit Redistribution Along the Chain
Domestic cotton prices averaged 17,695 yuan/ton, up 15.2% year-on-year, but yarn prices lagged, with 32s combed cotton yarn averaging 23,328 yuan/ton, down only 8 yuan month-on-month. Upstream gains failed to transmit downstream, leading to rising finished goods inventories; July yarn output fell 5.9% month-on-month. This reveals a key contradiction: cotton's financial attributes strengthen, but textile end-demand remains weak, squeezing intermediate margins.
Xinjiang yarn output surged 17% year-on-year to 321,000 tons, while national output fell 2.2%, magnifying the capacity shift to Xinjiang. This implies further competitive pressure on inland mills, while Xinjiang's raw material and energy cost advantages are reshaping the industry map. For buyers, Xinjiang yarn's cost-effectiveness may continue to expand, but logistics and lead times must be considered.
Reserve Releases and Inventory Drawdown: Short-Term Buffer, Long-Term Signal
Reserve releases, initiated on July 20, saw cumulative sales of 80,200 tons by month-end, fully subscribed, indicating strong replenishment demand. Commercial inventories fell to 2.5 million tons, down 19.4% month-on-month, accelerating destocking; industrial inventories edged up 2.3% to 888,000 tons, reflecting opportunistic restocking. Early premiums were higher but later moderated, suggesting market expectations for supply additions are being digested.
However, reserve releases are a short-term buffer. Global supply was cut by 119,800 tons, and ending stocks by 326,600 tons, reinforcing supply tightness. New crop opening prices are expected to be high, providing support for forward prices. With the domestic-international spread narrowing to 2,808 yuan, imported cotton's cost advantage has diminished, but if international prices continue rising, imports may regain appeal.