The expected opening purchase price for China's new cotton crop has climbed above 7 yuan/kg, nearly 10% higher than last year, seemingly offering growers some reassurance. Yet downstream spinning mills are in no rush to restock, leaving the market caught in a tug-of-war between rising supply-side costs and lacklustre demand. Near-term price direction remains unclear.
Supply Side: Diminishing Harvest Cut Story, New Crop Pricing Battle
The domestic cotton market's earlier bet on a production cut is fading. Field surveys by the national cotton monitoring system show no significant decline in key Xinjiang regions such as Alar, Bazhou and Aksu, with overall output flat or only slightly lower year-on-year. This means the weather premium built into futures needs correction.
More telling is the cautious stance of ginning mills. They plan to start purchasing around September 20, with machine-picked cotton expected at 7.0-7.6 yuan/kg, well above last year's 6.3-6.4 yuan/kg. But ginners are wary, haunted by the 2023 pattern of "rise first, fall later." For factories, the risk of inventory depreciation from aggressive buying is real, making purchasing pace and funding arrangements more critical than the price itself.
Reserve cotton sales entered their eighth week, with the transaction rate failing to reach full subscription for the first time, dropping to 99.35%, while the average price edged lower. This sends a clear signal: spinning mills are bidding rationally based on orders and quality needs, no longer panic-buying. Supply remains ample, with new crop arrivals and reserve releases keeping near-term pressure intact.
Internationally, U.S. cotton good-to-excellent ratings fell 5 percentage points week-on-week to 34% as of September 6, with nearly 60% of producing areas affected by drought. But the USDA's September report cut 2026/27 U.S. production by only 89,000 tonnes to 2.874 million tonnes, less than expected, triggering profit-taking. Brazil's harvest reached 89.4%, 2.5 percentage points ahead of last year, with output forecasts of 4.02-4.5 million tonnes, offsetting the U.S. decline.
Demand Side: Strong Exports Mask Weak Domestic Market
Customs data show August textile and apparel exports reached $28.57 billion, up 7.7% year-on-year, marking the third consecutive month above 7% growth. This offers some support to consumption expectations, indicating external demand resilience. However, part of the export growth stems from price factors and order front-loading, not necessarily a full recovery in end consumption.
Domestically, downstream performance lags. Spinning mill operating rates are stable to slightly higher, with new orders improving marginally, but profits remain under pressure and raw material purchases are need-based. Domestic C32S combed yarn averaged 23,708 yuan/tonne, up just 64 yuan week-on-week, or 0.3%, while imported yarn prices were flat, narrowing the spread to 7 yuan/tonne. Yarn prices struggling to follow cotton higher suggests cost pass-through to end users is blocked.
Polyester staple fibre rose 285 yuan/tonne to 8,447 yuan/tonne, posing substitution competition. With razor-thin cotton yarn margins, mills are more inclined to adjust blending ratios, a marginal negative for cotton demand.
Macro: Tariff Talks versus Rate Hike Expectations
Macro factors are mixed. On September 10, the Commerce Ministry said China and the U.S. are negotiating a $30 billion reciprocal tariff reduction framework, with market expectations that the list could cover apparel, footwear, home goods and textiles. If implemented, it would be a substantive positive for cotton textile and apparel exports, but talks are ongoing, so near-term impact is sentiment-driven.
On the bearish side, U.S. August core CPI rose 0.3% month-on-month, above expectations, pushing market odds of a September Fed rate hike to nearly 90%. Middle East conflicts drove Brent crude above $109/barrel, stoking inflation expectations and pressuring commodity valuations. Tightening financial conditions weigh on cotton prices.
Domestic policy offers marginal support. The "Financial Powerhouse Construction 15th Five-Year Plan" was officially released, pledging to improve futures market product offerings and enhance commodity price influence. Consumer loan interest subsidies supported about 1.88 trillion yuan of household consumption in the first seven months, with plans to guide financial institutions to boost goods consumption. If implemented, these measures could improve financing conditions and end-consumption expectations for the cotton textile chain, but transmission takes time.
Outlook: Range-Bound, Watch Two Variables
In summary, the USDA report provided no new bullish drivers, and supply pressure from the U.S. harvest is emerging, keeping international cotton prices weak and range-bound. Domestically, with new crop purchasing imminent, the tug-of-war between opening prices and production expectations will dominate the market. Continued reserve sales add supply, while downstream demand improves only modestly. Zhengzhou cotton is likely to stay range-bound short-term.
Two key variables merit close attention: first, the actual opening purchase price. If ginners aggressively buy and push prices higher, futures could rebound, but hedging pressure may follow. Second, the real change in peak-season orders. If the "Golden September and Silver October" disappoints, demand will continue to drag on prices.