At 16,673 yuan per ton, the settlement price of Zhengzhou cotton futures this week fell 295 yuan, or 1.7%, from the previous week. Behind this figure lies a reality of accumulating bearish supply factors and persistently slow demand improvement. With new-crop cotton about to hit the market, reserve cotton continuing to be auctioned, and downstream orders falling short of expectations, the supply-heavy, demand-light dynamic is dictating the market.
Price Divergence: Domestic Yarn Outperforms Imported, Price Gap Widens
While domestic cotton prices came under pressure, international prices fell even more sharply. ICE cotton futures settled at an average of 86.97 cents/lb, down 2.6% week-on-week. The International Cotton Index (M), representing the landed price of imported cotton at Chinese main ports, fell 3.4% to an equivalent of 15,879 yuan/ton. This means domestic cotton now commands a premium of 2,181 yuan/ton over international cotton, with the spread widening by 429 yuan from the previous week. The wider gap supports the competitiveness of imported yarn but also adds greater pressure on domestic spinners' raw material costs.
The yarn market shows a divergent picture. Domestic C32S combed yarn averaged 23,708 yuan/ton, up 0.3% week-on-week, while the same specification from major import sources averaged 23,715 yuan/ton, essentially flat. The premium of regular imported yarn over domestic yarn has been nearly erased to just 7 yuan/ton. Meanwhile, polyester staple fiber rose 285 yuan to 8,447 yuan/ton, and the substitution effect of chemical fibers over cotton deserves attention.
Supply Side: U.S. Crop Cut Falls Short, Brazil's Bumper Crop Offsets
The U.S. cotton good-to-excellent rating fell 5 percentage points week-on-week to 34%, with nearly 60% of producing areas still affected by drought and the drought range expanding. The crop reduction expectation is objectively still strengthening, but the weather premium previously over-traded is being gradually corrected, and the marginal driving force has clearly weakened. The USDA's September supply and demand report cut U.S. cotton production for 2026/27 by 89,000 tons to 2.874 million tons, which did not exceed market expectations. After the report's release, bulls took profits, and international cotton prices overall showed a weak, range-bound trend.
Brazil's bumper crop prospect offsets the U.S. production cut. As of the week ending September 4, Brazil's 2025/26 cotton harvest reached 89.4%, 2.5 percentage points faster than the same period last year. Market forecasts for its output are concentrated between 4.02 and 4.5 million tons, and this season is expected to continue a high-yield pattern. There is no obvious supply shortage globally, which is an important reason why international cotton prices lack further upward momentum.
Domestically, Xinjiang cotton boll-opening has reached nearly 50%, faster than last year, with scattered purchasing already starting in some areas. According to field research by the national cotton market monitoring system, no significant production reduction has occurred in Alar, Bayingolin, Aksu and other areas, and overall output is expected to be flat or slightly lower year-on-year. Ginning factories plan to start purchasing around September 20, with machine-picked cotton opening prices expected at 7.0-7.6 yuan/kg, notably higher than last year's 6.3-6.4 yuan/kg.
This opening price expectation is the biggest bargaining point in the current market. A high opening price means higher costs for ginners, but downstream acceptance is limited, and corporate profits remain under pressure. Ginners are cautious in their purchasing mentality, worried about a repeat of the "rise first, fall later" pattern seen in 2023.
Demand Side: Export Resilience Persists, But Peak Season Underwhelms
Downstream spinning mills' operating rates are stable with slight increases, and new orders have improved marginally but to a limited extent, with raw material procurement mainly based on rigid demand. Reserve cotton sales entered their 8th week, and the transaction rate failed to reach full capacity for the first time, dropping to 99.35%, with the average transaction price slightly lower week-on-week. Spinners bid rationally based on orders and quality needs. As of September 11, central reserve cotton cumulative transactions exceeded 320,000 tons. The decline in the transaction rate itself is a signal—spinners are not optimistic about the market outlook, and their willingness to restock is becoming conservative.
Export data provides some confidence support. According to customs data, textile and apparel exports in August reached $28.57 billion, up 7.7% year-on-year, maintaining above 7% growth for the third consecutive month. The stable export performance provides some boost to consumption expectations, but domestic demand recovery remains slow. In August, the consumer price index rose 0.8% year-on-year, with core CPI rebounding to 1.0%, and the transmission effect to terminal consumption still needs time.
At the macro level, geopolitical disturbances and rate hike expectations are jointly weighing on risk appetite. The expansion of Middle East conflicts pushed Brent crude above $109/barrel, heating up inflation expectations. The U.S. August core CPI rose 0.3% month-on-month, higher than market expectations, and the probability expectation for a September Fed rate hike rose to nearly 90%, putting significant pressure on commodity valuations. On China-U.S. trade talks, the two sides are negotiating a $30 billion reciprocal tariff reduction framework, and the market expects the tariff reduction list to likely cover clothing, footwear, home goods, textiles and other consumer goods, providing some boost to cotton market sentiment.
Overall, the USDA September report failed to provide new bullish factors, and supply pressure from the U.S. cotton harvest is gradually emerging. International cotton prices may continue a weak, range-bound pattern in the short term. With China's new-crop opening imminent, the game between purchase prices and production reduction expectations will dominate the market, and Zhengzhou cotton may maintain range-bound trading in the short term.