Cotton market challenged by high operating rates but thin margins

In the first quarter of 2026, China's domestic cotton market demonstrated stronger-than-expected consumption resilience during the traditional peak season of "Golden March", supported by high operating rates at downstream textile mills. As April begins, questions arise around whether the anticipated tightening of cotton supply and sustained consumption resilience will hold. While the fundamentals outlook remains supportive, caution is warranted over potential disruptions from profit pressures, different orderbook performance among players, and macro volatility. Overall, the market is expected to see strong support with weak volatility.

According to Mysteel's survey, China's domestic commercial cotton inventories have been on a downward trend. As of March 27, 2026, total commercial cotton inventories stood at 4.89 million tonnes, a decrease of 373,800 tonnes from the end of February, when the inventory read 5.27 million tonnes). Taking into account cotton imports in March, China's overall cotton consumption for March is estimated at around 750,000-800,000 tonnes.

On the demand side, domestically, the operating rates of spinning mills in mainstream regions averaged 78.5% as of March 26, indicating early restarting among domestic textile enterprises after the Chinese New Year holiday.

In addition, customs data show that China's textile and apparel exports totaled $50.45 billion in January-February 2026, up 17.6% year-on-year and 22.1% compared to the same period in 2025. The noticeable rebound in exports has significantly boosted demand in the domestic market.

Additionally, rising crude oil prices driven by the Middle East conflict have pushed up chemical fiber prices by more than 40%, improving cotton's cost competitiveness and further supporting cotton demand.

Looking ahead, with traditional peak-season of March now concluded, whether consumption momentum can sustain into April still faces significant risks.

First, profit margins have been severely squeezed. According to a Mysteel's survey, the current spot profit of ring-spinning of textile mills in Xinjiang is around Yuan 400/tonne, while inland textile mills remain in negative territory at Yuan -1,200/tonne. The underlying reason is that since March, cotton prices have risen much faster than yarn prices. Against the backdrop of narrowing immediate profits, mills have been cautious in procurement, and the off-take of higher-priced cotton resources has notably slowed recently.

Second, the order performance has shown great differences among playes. Orders for large textile enterprises remain decent, but small and medium-sized textile mills are seeing orders characterized by short-term and scattered arrangements, with poor order sustainability. This is particularly true for textile enterprises in inland regions, where production and sales are not smoothly aligned.

Third, macroeconomic risks still persist. Geopolitical tensions in the Middle East, fluctuations in global profits, and uncertainty surrounding recurring tariff changes all affect global textile and apparel demand, which in turn impacts domestic textile industry demand.

Overall, cotton consumption resilience in April may weaken compared to March, but it is unlikely to experience a sharp decline given the support of a tight supply-demand balance. In the short term, the local cotton consumption rate of cotton in Xinjiang continues to rise, and high operating rates at textile mills will sustain rigid replenishment demand.

Going forward, key factors to monitor include the sustainability of downstream orders, changes in yarn profits, and the cotton planting progress in Xinjiang in April.