Zhengzhou cotton futures settled at 16,673 yuan/ton this week, down 1.7% week-on-week. The figure itself is not alarming, but against the backdrop of approaching new crop arrivals, continuous reserve cotton sales, and weaker-than-expected downstream orders, market sentiment is rapidly retreating from earlier over-trading of production cuts. The supply-heavy, demand-light pattern has not fundamentally changed, and short-term price pressure remains the base case.
Price Signals: Domestic and International Markets Weaken in Tandem
The China Cotton Price Index (B) for standard-grade lint averaged 18,060 yuan/ton, down 0.8% from the previous week. Internationally, ICE cotton futures settled at 86.97 cents/lb, down 2.6%, while the International Cotton Index (M) for imported cotton delivered to Chinese main ports fell 3.4% to an equivalent of 15,879 yuan/ton. Domestic cotton now trades at a premium of 2,181 yuan/ton over international prices, with the spread widening by 429 yuan/ton week-on-week.
What does this widening spread mean? For export-oriented spinners, the raw material cost disadvantage becomes more pronounced, relatively boosting the competitiveness of foreign yarn. This week, conventional imported yarn prices were nearly flat against domestic yarn, with the spread narrowing to just 7 yuan/ton. While the import yarn threat has not yet intensified, a persistently wide cotton price gap will further squeeze the bargaining space for domestic mills on export orders.
Polyester staple fiber prices, by contrast, rose 285 yuan/ton to 8,447 yuan/ton, diverging from cotton. For blended yarn producers, the economics of fiber substitution are shifting, requiring more granular comparative costing in procurement strategies.
Supply Side: Production Cut Narrative Cools, Brazil Offsets US Shortfall
The USDA's September supply and demand report cut 2026/27 US cotton production by 89,000 tons to 2.874 million tons, but this adjustment did not exceed market expectations. As of September 6, the US 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 further. The production cut expectation is objectively still strengthening, but the weather premium that was previously over-traded is gradually correcting, and marginal momentum has clearly weakened.
Meanwhile, Brazil's cotton harvest is entering its final stage, with the harvest rate reaching 89.4% as of the week of September 4, 2.5 percentage points ahead of last year. Market forecasts for Brazilian production are concentrated at 4.02-4.50 million tons, and another high-yield season is expected. The Southern Hemisphere's bumper crop outlook effectively offsets the US production shortfall, and no substantial gap has emerged on the global supply side.
Domestically, Xinjiang cotton boll-opening has reached nearly 50%, faster than last year, with scattered purchasing already starting in some areas. According to on-site surveys by the national cotton market monitoring system, no significant production cuts have occurred in Alar, Bazhou, or Aksu, and overall output is 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/kg, notably higher than last year's 6.3-6.4 yuan/kg.
Cautious purchasing sentiment is the most noteworthy signal in the current supply chain. Ginning mills worry about a repeat of the 2023 "rise-then-fall" pattern. A high opening price means higher purchasing costs and greater downside risk. For upstream cotton farmers, whether the high opening translates into actual returns depends on subsequent futures movements. For downstream spinners, higher raw material costs will directly squeeze already thin processing margins.
Demand Side: Export Resilience Persists, But Domestic Recovery Lags
Customs data shows that August textile and apparel exports reached $28.57 billion, up 7.7% year-on-year, marking the third consecutive month of above-7% growth. This provides some support for consumption expectations and suggests external demand has not fallen as quickly as feared. However, part of the export growth may stem from price factors and order front-loading, and sustainability needs further observation.
Downstream mill operating rates have risen steadily, with new orders improving slightly but to a limited extent. Corporate profits remain under pressure, and raw material procurement is mainly need-based restocking. This week marked the eighth week of reserve cotton sales, with the transaction rate failing to reach full subscription for the first time, dropping to 99.35%, while the average transaction price edged lower. As of September 11, cumulative central reserve cotton transactions exceeded 320,000 tons. Mills are bidding rationally based on orders and quality needs, reflecting cautious market expectations and reluctance to build excessive raw material inventories.
On the macro front, US August core CPI rose 0.3% month-on-month, above the expected 0.2% and the largest monthly gain in four months. Market expectations for a September Fed rate hike have risen to nearly 90%. Tightening financial conditions are weighing on commodity valuations. Domestically, August CPI rose 0.8% year-on-year, core CPI rebounded to 1.0%, and PPI growth widened to 3.8%, indicating stronger upstream cost transmission, though terminal consumption recovery remains slow.
Notably, on September 10, the Ministry of Commerce stated that China and the US trade teams are negotiating a $30 billion reciprocal tariff reduction framework. The market expects the tariff reduction list to likely cover apparel, footwear, home goods, and textiles. If implemented, this would provide marginal support for export orders and sentiment in the cotton textile supply chain, though the timing and scope remain uncertain.