The spread between domestic and imported cotton widened from 1,601 yuan per tonne at the end of August to 2,100 yuan by late September. That number matters more than any single price move. A wider spread restores the comparative advantage of imported cotton, yet the new Xinjiang crop carries a processing cost of 16,000-17,000 yuan per tonne, leaving buyers in a delicate position between the two markets.
Three Forces Driving Prices Lower
ICE cotton futures settled at 78.86 US cents per pound at the end of September, down 15.3% month-on-month. The International Cotton M Index, which tracks landed prices at Chinese main ports, fell to 92.39 cents, equivalent to an import cost of 15,215 yuan per tonne at the 1% tariff rate. Zhengzhou cotton futures closed at 15,840 yuan per tonne, down 7.2%, while the national B index for standard grade lint stood at 17,315 yuan, down 4.9%.
This decline was not driven by a single factor. The Federal Reserve restarted rate hikes after a three-year pause, with markets even pricing a third increase within the year, strengthening the dollar and pressuring commodity valuations. Harvests advanced across both hemispheres: US boll-opening and harvesting rates ran 3 and 2 percentage points ahead of five-year averages, while Brazil completed its harvest and raised its production forecast to 4.144 million tonnes. Expectations of a supply shortfall were gradually revised away. Domestically, the traditional textile peak season failed to deliver, with no noticeable surge in orders. These three forces converged, ending the previous rally.
The decline slowed late in the month, triggered by two developments: the eight-point consensus reached at the Washington summit between Chinese and US leaders, and the announcement that state reserve cotton sales would stop. Reserve sales had offered 409,000 tonnes at a 99.25% clearance rate and an average price of 17,191 yuan per tonne, effectively meeting mills' rigid demand and providing a buffer for the transition to the new Xinjiang crop.
Structural Tensions Beneath a Tight Balance
Globally, the USDA's September forecast put 2026/27 production at 25.54 million tonnes, down 3.8% year-on-year, against consumption of 26.76 million tonnes, up 1.5%. The deficit of 1.22 million tonnes and a stocks-to-use ratio of 57% remain historically low. The tight balance has not changed, but marginal supply recovery is eroding bullish sentiment.
Domestically, the picture deserves closer scrutiny. Commercial stocks reached 1.8097 million tonnes by mid-September, 634,000 tonnes above the same period last year, providing ample supply before the new crop hits the market. Xinjiang machine-picked cotton arrived about a week earlier than last year, with opening prices at 7.0-7.3 yuan per kilogram, slightly above the ten-year average of 6.9 yuan. This translates to a lint processing cost of 16,000-17,000 yuan per tonne, at the upper end of the normal range. Ginning factories have turned notably cautious, with some large operators cutting back on purchasing and most choosing to hedge in the futures market while buying, rather than holding spot positions outright.
Production expectations are also being revised upward. The September crop survey by the national cotton monitoring system forecasts 2026 national output at 7.46 million tonnes, down 290,000 tonnes year-on-year but still a historically high harvest. Earlier concerns about reduced planting area and heat damage in Xinjiang are being disproved as harvesting progresses.
Downstream data tells a different story. From January to August, national yarn output reached 14.339 million tonnes, up 0.7% year-on-year, with Xinjiang contributing 2.57 million tonnes, up 17.8%. Domestic textile and apparel sales totalled 961.49 billion yuan, up 5.1%, while exports reached $203.31 billion, up 3.1%. However, mill operating rates stood at 81.9% and yarn sales ratios at 96.7% in early September. Although both rose for a second consecutive month, they were 1.5 and 0.5 percentage points below last year, and 4.9 and 3.4 points below the first-half average. The gap between capacity growth and insufficient orders is the root cause of margin pressure in the yarn segment.
Structural Benefits from Trade Policy
China-US trade relations have stabilised in the short term, but the benefits for cotton textiles are structural. The extension of tariff exemptions to January supports the autumn-winter export environment. China's tariff reduction list includes US cotton, theoretically lowering import costs and boosting US cotton's competitiveness, though quota constraints and high bonded stocks mean actual增量 remains to be seen. The US reduction list covers only some non-cotton home textiles, not cotton apparel, falling short of market expectations.
Full details and implementation timing have yet to land, meaning the current price stabilisation is driven more by expectations than demand. For buyers, treating policy expectations as certainties when arranging long-term orders carries considerable risk.