In July, domestic cotton prices experienced a roller-coaster: early-month heat and drought in Xinjiang fueled crop-cut expectations, driving prices up sharply; mid-month reserve sales and weak off-season demand pulled them back down. The China Cotton Index (CCIndex3128B) averaged 17,695 yuan/ton, up 15.2% year-on-year but only 0.8% month-on-month. These figures signal a shift from 'double growth' to a 'tight balance' window, with widening divergence in price acceptance across the supply chain.
Supply-Demand Landscape: Output Cuts Meet Consumption Resilience
The China Cotton Association forecasts 2026/27 production at 7.153 million tons, down 3.5%; consumption at 8.92 million tons, up 1.7%; imports at 1.62 million tons, up 1.3%; and ending stocks at 6.236 million tons, down 2.5%. The output decline stems from a 3.9% reduction in planted area to 4.3066 million mu, though yields are expected to edge up 0.4% to 166.1 kg/mu. Xinjiang's output is projected at 6.857 million tons, down 3.5%, with regional heat damage varying. Notably, consumption growth persists despite the off-season, driven by capacity expansion in Xinjiang. July yarn output fell 5.9% month-on-month to 1.814 million tons, but Xinjiang's yarn output surged 17% year-on-year, underscoring the westward shift.
Price Transmission: Upstream Strength vs. Downstream Weakness
The core contradiction in July was the mismatch between upstream cost-push and downstream absorption. Mills purchased hand-to-mouth, finished goods inventories piled up, and yarn prices lagged. Domestic 32s pure cotton yarn averaged 23,328 yuan/ton, down 8 yuan month-on-month but up 13.33% year-on-year—a clear lag behind cotton's 15.2% gain, squeezing spinning margins. If cotton prices rise further, downstream resistance may intensify, potentially deferring orders or shifting to substitutes. Internationally, the CotlookA index averaged 88.9 US cents/lb, up 3% month-on-month; after a 1% tariff, it was 2,808 yuan/ton cheaper than domestic cotton, with the gap narrowing by 221 yuan. This reduced import appeal: July imports fell 16.6% month-on-month to 92,000 tons, though still up 72.5% year-on-year. Australian cotton accounted for 59.8% of imports, up 31.9 percentage points. The USDA's August report cut global ending stocks by 326,600 tons, lowering the stocks-to-use ratio to 56.7%, reinforcing tight supply expectations.
Reserve Sales and Inventory Digestion: Stabilizer and Barometer
Reserve sales began July 20, with 80,200 tons sold by month-end, all fully subscribed at an average price of 17,253 yuan/ton, with an average premium of 1,638 yuan. Premiums narrowed as mills became more rational. This suggests reserves effectively bridged the pre-new-crop gap, but also reflects caution toward high prices. Commercial cotton inventories fell 19.4% month-on-month to 2.5 million tons, while industrial inventories rose 2.3% to 888,000 tons. This destocking at the social level and restocking at the mill level indicates strengthening bottom-fishing, yet if prices climb further, restocking may wane.
Pre-New-Crop Game: High Opening Price Expectations vs. Risks
Market consensus expects near-term prices to remain supported, with seed cotton opening prices likely high. This is based on tight supply-demand, but risks loom: downstream inventory accumulation could lead to 'price without buyers' if autumn/winter orders disappoint; reserve releases create a policy ceiling; and trade policy volatility plus Southeast Asian order diversion may weaken exports. July textile and apparel exports fell 1.6% month-on-month to $28.79 billion, with cotton product exports down 7.3% to $5.99 billion, including declines to the US, EU, and Belt-and-Road countries—external demand signals are concerning.
For Buyers - Procure on a need-basis, avoid chasing highs, and monitor reserve sales for price anchors. - Leverage the narrowed internal-external spread to assess total costs and lock in cost-effective supplies. - Watch new-crop opening price expectations; consider point pricing or forward contracts if futures premiums are excessive.
For Exporters - Build raw material price volatility into quotes; adopt floating pricing plus forward FX hedging. - Counter Southeast Asian competition by upgrading to high-count yarns, differentiated fabrics, and value-added products. - Manage RMB exchange rate fluctuations by timing settlements to minimize conversion losses.
In summary, July data depict a market with a ceiling and a floor. Reserve sales provide a short-term buffer, but the pre-new-crop supply gap will be resolved through price signals. Rather than betting on one-directional moves, supply chain players should optimize inventory and procurement strategies to navigate the tight-balance cycle.