When Brent crude climbed back above $100 a barrel, the relative economics of textile raw materials shifted almost immediately. On September 9, the most-active December ICE cotton contract settled at 87.28 cents per pound, up 0.96 cent, or 1.11%, just one session after touching 85.56 cents, its lowest since August 19. A rebound from a three-week low within a single day shows the market prices cost-side changes far faster than it does demand signals.
Oil, the Dollar and Fiber Substitution
Two forces drove the bounce: surging crude and a softer dollar. Higher oil lifts polyester production costs, and polyester is cotton's primary substitute in spinning. When the spread narrows, mills tilt their fiber blends toward natural cotton. Meanwhile, the dollar index hovered near a two-week low, making dollar-denominated commodities cheaper for overseas buyers and improving export inquiry sentiment.
Crucially, this substitution advantage is passive rather than demand-driven. What really determines the medium-term trend is the Northern Hemisphere harvest and the global supply-demand balance.
Supply-Side Tug of War
The USDA weekly crop report delivered a bearish signal. For the week ending September 6, the US cotton good-to-excellent rating fell to 34% from 39% a week earlier, versus 54% a year ago. The harvest was 7% complete, matching last year and slightly above the five-year average of 6%. The sharp drop in crop condition points to yield losses, but with harvesting just beginning, actual output remains uncertain.
In the Southern Hemisphere, the news was bullish for supply. Consultancy Agroconsult raised its 2025/26 Brazilian lint cotton forecast by about 300,000 tonnes to a record 4.5 million tonnes, citing higher yields found in field surveys. Brazilian supply will reach the market in the first half of next year, capping international prices over the medium term.
On inventories, ICE-certificated No. 2 cotton stocks stood at 54,414 bales as of September 8, unchanged from the prior session, with no obvious delivery pressure. In the spot market, the Cotlook A index rose 10 points to 96.10 cents per pound, moving in step with futures.
Transmission Through the Supply Chain
For Chinese spinners, the cotton-polyester staple spread is the key variable in blend decisions. If oil strength persists, polyester staple quotes will follow PTA and MEG higher, temporarily widening cotton's cost-performance window. How long that window stays open depends on whether crude holds above triple digits and whether the US crop deterioration translates into actual production losses.
For exporters, a weaker dollar briefly improves the competitiveness of dollar-denominated quotes. But if oil stays elevated, freight rates and energy surcharges may rise in tandem, eroding part of the currency benefit. Buyers should evaluate raw material costs, exchange rates and freight on a single ledger rather than watching cotton prices alone.