Vietnam’s Cotton Import Engine: China Yarn Demand Tightens Global Balance

Vietnam’s cotton market is tightening as strong Chinese yarn demand pushes mills to run near full capacity, draw down stocks and prepare for a 10% jump in cotton imports in 2026/27, with US origin consolidating its lead in supply. Rising financing costs and heatwave‑linked power risk in Vietnam are emerging headwinds but have not yet derailed the bullish import trajectory.

Vietnam has rapidly become a pivotal hub in the global cotton and yarn trade. With virtually no domestic cotton production and a fast‑growing, export‑oriented textile sector, the country channels imported fibre into yarn for China and other Asian buyers. Recent data show mills operating at high utilisation, supported by improved yarn prices to China in early 2026. Against this backdrop, shifting supplier patterns toward US cotton, leaner stocks and potential energy constraints will be key drivers of import decisions and, by extension, global cotton flows into 2027.

📈 Prices & Margin Dynamics

Cotton fibre import prices into Vietnam held around EUR 2.0–2.1/kg equivalent (USD 2.2–2.3/kg) between August and December 2025, while yarn export prices to China offered less than EUR 0.9/kg of gross margin, below estimated full production costs. This severely squeezed mill profitability through late 2025. As of early 2026, yarn export prices to China have rebounded toward roughly EUR 2.7–3.0/kg, restoring workable margins and supporting continuous mill operations.

Globally, ICE cotton futures have recovered from February lows near 0.56–0.58 EUR/kg (around 60–61 USc/lb) to trade above 0.68–0.70 EUR/kg (around 72 USc/lb) in early April, signalling firmer underlying sentiment and tightening balance expectations. Nearby contracts still sit well below their 2022–23 peaks, but the recent rally, combined with stronger yarn prices, is beginning to transmit higher raw material costs to Vietnam’s spinners.

🌍 Supply, Demand & Trade Flows

Vietnam’s cotton import demand is forecast to rise 10% in marketing year (MY) 2026/27 to 8.4 million bales, following a downward revision of MY 2025/26 imports to 7.6 million bales as mills relied on existing inventories to meet exceptional yarn demand. Between August 2025 and February 2026, arrivals reached about 872,000 tonnes (4.0 million bales), down 8% year on year, highlighting the degree of stock drawdown.

As a result, ending stocks in MY 2025/26 are projected at 913,000 bales, lowering the stocks‑to‑use ratio to roughly 12% from 14% in 2024/25. Stocks are expected to recover to a 16% ratio in 2026/27 as higher imports rebuild pipeline inventories in line with expanding spinning capacity and stronger forward order books.

On the demand side, Vietnam’s cotton yarn exports climbed 8% by volume in calendar 2025 to 1.05 million tonnes, with export value flat at EUR 2.3 billion equivalent. China absorbed 84% of volumes (881,000 tonnes), up 10% year on year, while shipments to South Korea fell 12%. Early 2026 data show a sharp acceleration: January–February yarn exports reached 174,000 tonnes, up 23% year on year, with most mills reporting orders secured through at least June 2026.

📊 Supplier Shifts & Global Context

The US has sharply strengthened its position as Vietnam’s dominant cotton supplier. US exports to Vietnam between August 2025 and February 2026 surged 75% year on year to nearly 1.7 million bales, and full‑year MY 2025/26 shipments are estimated at 3.2 million bales, up 12%. US cotton captured 42% of Vietnam’s import volume in that period, up from 24% a year earlier, reflecting perceived quality, traceability and compliance advantages sought by international apparel brands.

By contrast, Brazilian cotton exports to Vietnam dropped 44% to about 950,000 bales as Brazil redirected more fibre to China, while Australian shipments fell 12% to 789,000 bales amid lower production and deliberate diversification. This re‑routing underscores Vietnam’s dual role: a structural yarn supplier to China and a major absorption point for US cotton, increasingly embedding US fibre in yarn and garments ultimately destined for Europe and other consumer markets.

🏭 Industrial Conditions & Risk Factors

Vietnam’s spinning sector comprises 121 mills with capacity around 10.4 million spindle equivalents, split between 46 foreign‑invested facilities (mainly in the south) and 75 Vietnamese‑owned mills spread more widely. The broader textile and apparel industry generated EUR 40.4 billion in export revenues in 2025, up 5% year on year, underpinned by 17 free trade agreements that secure favourable access to major consumer markets.

However, financial and operational stresses remain. Several spinning mills and traders were added to the International Cotton Association’s defaulter list between October 2025 and March 2026, signalling continued liquidity pressure despite better yarn prices. Domestic interest rates have climbed above 10%, from 5–6% in late 2025, raising working‑capital costs for inventory‑heavy operations like spinning.

Weather‑driven energy risks are a new watchpoint. An unusually early heatwave in April 2026 has pushed temperatures in northern Vietnam toward 40°C and raised concerns about strain on hydro‑dependent power supplies and grid stability. Any extended power disruptions or rationing could temporarily cap spinning utilisation, delay shipments and alter short‑term cotton import timing, even if underlying demand remains strong.

📉 Policy & Structural Shifts

Vietnam maintains a zero import tariff and 5% VAT on cotton fibre, versus a 5% tariff and 8% VAT on cotton yarn imports, structurally favouring domestic spinning over yarn imports. The government is prioritising specialised industrial zones in weaving, knitting, dyeing and finishing to deepen vertical integration. Over time, this should reduce dependence on yarn exports—especially to China—and increase the share of higher‑value fabric and garment exports.

Nonetheless, Vietnam’s yarn supply chain remains highly exposed to Chinese demand and global trade frictions. Reports from early April 2026 highlight that Vietnamese textile and garment producers face rising input costs and more cautious order patterns from Western buyers amid Middle East–related shipping and energy cost spikes. These pressures reinforce the strategic importance of stable cotton sourcing and diversified downstream markets.

📆 Outlook & Trading Implications

Near Term (Next 30–90 Days)

• Mills are likely to continue operating near full capacity given solid order coverage through at least June 2026 and recently improved yarn prices to China.
• Cotton import flows into Vietnam should firm as spinners rebuild inventories from relatively low stock levels, especially if ICE prices consolidate rather than spike further.
• Key short‑term risks include any escalation in shipping costs linked to geopolitical tensions, heatwave‑related power supply constraints in Vietnam, and renewed volatility in global cotton futures.

Medium Term (6–12 Months)

• The projected 10% growth in cotton imports to 8.4 million bales in 2026/27 hinges on sustained Chinese yarn demand and the durability of improved spinning margins.
• Further expansion of weaving and finishing capacity in Vietnam could gradually shift the model from yarn export to more integrated fabric and garment exports, altering fibre import timing but not the structural dependence on cotton.
• US cotton is poised to remain the leading supplier to Vietnam, given its strengthened share and brand‑driven traceability requirements, though Brazil’s allocation decisions toward China remain an important swing factor.

📌 Strategic Takeaways for Market Participants

• Producers and Merchants: Consider forward‑selling strategies into Vietnam timed around inventory rebuilding, while monitoring Vietnam’s interest‑rate environment and payment risks signalled by recent contract defaults.
• Spinners in Vietnam: Lock in a portion of cotton needs on price dips given recovering ICE futures and strengthening yarn prices, but manage exposure to energy and financing costs through tighter inventory and hedging policies.
• Apparel Buyers (EU/US): Recognise growing US cotton content in Vietnamese yarn and garments; use this to meet traceability requirements while diversifying origin risk between US, Brazilian and Australian supplies where possible.
• Speculative Investors: The combination of low Vietnamese stocks, rising imports and recovering demand from China supports a mildly bullish bias for cotton, tempered by macro risks and potential demand softness from high retail prices.

📍 3‑Day Directional Price Outlook (in EUR)

Contract/Market	Current Level (approx.)	3‑Day Bias	Comment
ICE Cotton May 2026	≈ EUR 0.69/kg	Slightly Bullish	Supported by recovering from February lows and firm textile demand; watch USD and macro sentiment.
China ZCE Cotton May 2026	≈ EUR 1.80/kg	Sideways to Slightly Bearish	Prices off recent highs as domestic policy and demand uncertainties cap rallies.
Vietnam Yarn Export (to China)	≈ EUR 2.7–3.0/kg	Stable to Firm	Improved margins vs. late 2025; short‑term moves tied more to Chinese buying appetite than to small futures swings.