The price spread between domestic and imported cotton is widening at a visible pace. By early September, the cost of imported Brazilian cotton under a 1% tariff was 4,050-4,250 yuan per ton lower than Xinjiang cotton in inland warehouses, expanding by 600-800 yuan per ton from late August. This gap signals a clear cost advantage for imported cotton, but actual transactions remain constrained by quotas, exchange rates, and market sentiment.
Drivers Behind the Widening Spread
The immediate trigger was a sharp drop in ICE cotton futures. Within a week, the December contract fell from 93.74 cents to 85.68 cents per pound, an 8.66% decline, pressured by a stronger dollar, rising rate hike expectations, improved moisture in US cotton belts, and weak export data. Meanwhile, Zhengzhou Cotton Futures (CF2701) only retreated 615 points, or 3.55%, showing relative resilience. The divergence in price movements lowered import costs while domestic prices stayed firm, naturally widening the gap.
Quotations from major traders on September 5-7 showed Brazilian cotton M 1-1/8 (28 GPT) at 84.5 cents/lb, while the 2025 crop M 1-5/32 (28/29 GPT) was offered at 87 cents/lb. The landed cost under a 1% tariff was about 14,530 yuan/ton, or 14,980 yuan/ton under the sliding duty. Australian cotton SM 1-5/32 (29 GPT) was quoted at 98.5 cents/lb. In contrast, Xinjiang machine-picked cotton (3129B/3130B) in inland warehouses carried a basis of 1,550-1,750 yuan/ton over CF2701. After accounting for weight settlement differences, the actual spread between imported Brazilian cotton and Xinjiang cotton was substantial.
Industry Transmission: Inquiries Recover, But Deals Lag
The wider spread boosted the appeal of bonded and afloat cotton in ports like Qingdao and Zhangjiagang. Traders reported increased inquiries and some pick-up in purchases of Australian and Brazilian cotton, especially for high-grade lots. However, actual volumes remained limited due to quota shortages. Most mills lack 1% tariff quotas and rely on the sliding duty or reserve cotton, which continues to be sold and diverts demand. Additionally, the RMB's depreciation against the dollar raised import costs and added uncertainty, making mills hesitant to buy dollar-denominated cotton.
This "hot inquiries, cold deals" scenario kept port inventories high, as stocks were easier to build than to reduce. For traders, this means higher capital occupation and storage costs, increasing pressure to cut prices. For mills, scarce quotas mean they can see the low prices but cannot easily access them, limiting real benefits.
Outlook and Procurement Window
The wide spread is likely to persist in the short term. Externally, a strong dollar and rate hike expectations continue to weigh on ICE cotton, while weak US export data offers little upside. Domestically, before new crop arrivals, Xinjiang cotton supply remains tight, keeping prices firm. Thus, the spread may stay above 4,000 yuan/ton or even widen further.
However, if the spread remains wide, more mills may seek processing trade or additional quotas to buy imported cotton, potentially lifting international prices. Also, any adjustment in reserve cotton sales policy could affect domestic supply-demand balance. For textile mills, this is a critical window to evaluate imported cotton's cost-effectiveness, but decisions should factor in quota availability and currency hedging.