The domestic cotton price now sits 2,181 yuan per tonne above the international benchmark, a spread that widened by 429 yuan in a single week. That number matters more than the headline decline: it tells buyers that imported cotton is regaining relative value while domestic supply remains temporarily tight ahead of the new crop. When both markets fall but the overseas one falls twice as fast, the procurement calculus for spinning mills shifts quietly.
Price Signals: Synchronised Weakness, Different Slopes
Zhengzhou cotton futures settled at an average of 16,673 yuan per tonne, down 1.7% week-on-week, while the China Cotton Price Index B for standard-grade lint averaged 18,060 yuan per tonne, a 0.8% decline. On the international side, ICE cotton futures averaged 86.97 US cents per pound, down 2.6%, and the International Cotton Index (M) landed cost equivalent fell 3.4% to 15,879 yuan per tonne under the 1% tariff scheme.
The overseas market fell nearly twice as fast as the domestic one, pushing the spread from 1,752 yuan to 2,181 yuan per tonne. For buyers, imported cotton is becoming more competitive, yet the landed cost still exceeds domestic spot prices. A widening spread here is not a sign of strong demand but rather a timing gap in supply ahead of the new harvest.
Yarn markets show domestic strength against imported weakness. Domestic C32S carded yarn averaged 23,708 yuan per tonne, up 0.3%, while the same specification from major import sources averaged 23,715 yuan per tonne, essentially flat. Imported yarn now commands a premium of just 7 yuan per tonne over domestic yarn, erasing its cost advantage and opening a window for weavers to switch to local supply. Polyester staple fibre rose 285 yuan to 8,447 yuan per tonne, reinforcing the substitution effect of synthetic fibres at the cost level.
Supply Side: Crop-Loss Expectations Cool, Ginning Price Becomes the Pivot
The USDA's September supply and demand report cut US cotton production for 2026/27 by 89,000 tonnes to 2.874 million tonnes, but the reduction fell short of market expectations, triggering profit-taking and unwinding the weather premium. As of September 6, the US cotton good-to-excellent rating dropped 5 percentage points week-on-week to 34%, with nearly 60% of growing areas still affected by drought. The crop-loss narrative persists objectively, but its marginal driving force has clearly faded.
Brazil's bumper crop is offsetting the US shortfall. As of the week ending September 4, the 2025/26 Brazilian harvest reached 89.4%, 2.5 percentage points ahead of last year, with production forecasts clustered between 4.02 and 4.5 million tonnes. The tug-of-war between Southern Hemisphere abundance and Northern Hemisphere losses leaves the global supply side without a single directional driver.
In China, Xinjiang cotton boll-opening has reached nearly 50%, faster than last year, with scattered purchasing already starting in some areas. Field research by the national cotton market monitoring system found no significant production losses in Alar, Bayingolin, or Aksu, with overall output expected to be flat or slightly lower year-on-year. Ginning mills plan to start purchasing around September 20, with machine-picked cotton opening prices expected at 7.0-7.6 yuan per kilogram, well above last year's 6.3-6.4 yuan.
That opening price expectation warrants caution. A high opening means higher ginning costs, yet downstream spinning margins remain under pressure and raw material procurement is limited to essential restocking. Passing higher new-crop costs downstream will face significant resistance. Ginners are cautious, and their worry about repeating 2023's "rise-then-fall" pattern is not unfounded.
Reserve cotton sales entered their eighth week, with the transaction rate failing to reach full subscription for the first time, dropping to 99.35%, and the average price edging lower. As of September 11, cumulative central reserve sales exceeded 320,000 tonnes. The declining transaction rate is a signal: spinning mills are bidding rationally based on orders and quality needs, no longer chasing prices, and the reserve's supply function is being fully priced in.
Demand Side: Export Resilience Holds, But Peak-Season Quality Awaits Verification
Customs data show August textile and apparel exports reached US$28.57 billion, up 7.7% year-on-year, marking a third consecutive month of over 7% growth. Export resilience provides some support to consumption expectations, but one must distinguish volume from value. If export value growth is driven mainly by prices, the actual improvement in order volumes may be limited.
Mill operating rates have edged up, with new orders improving slightly but only marginally, while corporate profits remain under pressure. This combination suggests demand is recovering, but not enough to reverse the supply-heavy, demand-light structure. Mills focusing on essential restocking means intermediate inventory buffers are low. Should terminal orders disappoint, price support at the yarn level will loosen quickly.
On the macro front, Chinese and US trade teams are negotiating a US$30 billion reciprocal tariff reduction framework, with market expectations that the list could cover apparel, footwear, home goods, and textiles. If implemented, it would provide marginal support to cotton sentiment and export orders. However, rising Fed rate expectations and Middle East geopolitical disruptions pushing Brent crude above US$109 per barrel are tightening financial conditions and weighing on commodity valuations.