Cotton prices moved lower in tandem across domestic and international markets in September, with the ICE main contract settling at 78.86 cents/lb, down 15.3% from the end of August, while Zhengzhou cotton futures fell 7.2% to 15,840 yuan/tonne. The price spread between domestic and imported cotton widened from 1,601 yuan/tonne to 2,100 yuan/tonne. This widening spread signals that the cost advantage of imported cotton is eroding, pressuring spinning mills that rely on imported fibre, while offering a temporary substitution window for users of Xinjiang cotton.
Triple Pressure Weighs on Prices
Macro headwinds dominated sentiment. The Fed resumed rate hikes after a three-year pause, with markets pricing in another increase before year-end. Rising long-end US Treasury yields strengthened the dollar and tightened global liquidity, weighing heavily on commodities including cotton.
On the supply side, Northern Hemisphere harvest progressed steadily. US cotton boll-opening and harvesting rates led five-year averages by 3 and 2 percentage points respectively. Brazil's harvest concluded entirely, with production revised up to 4.144 million tonnes. Earlier concerns about Xinjiang output cuts were gradually revised as harvest approached. The national cotton market monitoring system projected China's 2026 output at 7.46 million tonnes, down 290,000 tonnes year-on-year but still a historically high level. Supply-side recovery directly eroded the previous减产 premium.
Demand-side conditions remained lacklustre. Although spinning mill operating rates and yarn sales ratios rose for a second consecutive month in early September, they were down 1.5 and 0.5 percentage points year-on-year, and 4.9 and 3.4 percentage points below first-half averages. Orders failed to show significant volume growth, indicating limited downstream capacity to absorb higher cotton prices.
Structural Positives vs Supply Pressure
The late-September diplomatic meeting produced eight consensus points, stabilising China-US relations in the short term. Tariff relief was extended to January next year, marginally improving the autumn/winter export environment. China's tariff reduction list includes US cotton, theoretically lowering import costs. However, the US reduction list covers only selected non-cotton home textiles, not cotton textile and apparel products, making the benefit structural rather than broad-based. Constrained by import quota limits and high bonded inventory, actual incremental demand for US cotton remains uncertain.
Meanwhile, China ended its reserve cotton sales. As of September 29, cumulative sales reached 409,000 tonnes with a 99.25% transaction rate and an average price of 17,191 yuan/tonne. The end of reserve sales means the market will rely entirely on new crop supply. The transition between old and new crop years proceeded smoothly, but supply pressure from concentrated new crop arrivals cannot be ignored. Commercial inventory stood at 1.8097 million tonnes by mid-September, up 634,000 tonnes year-on-year, ensuring adequate supply before new cotton hits the market.
Regarding new crop procurement, Xinjiang machine-picked cotton harvesting began about a week earlier than last year. Opening prices clustered at 7.0-7.3 yuan/kg, slightly above the ten-year average of 6.9 yuan/kg, translating to lint processing costs of 16,000-17,000 yuan/tonne. Ginning mills showed notably higher caution, with some large enterprises scaling back procurement and processing, while most considered hedging in futures markets alongside purchasing to avoid holding single-direction spot exposure.
Price Anchors and Market Expectations
New crop costs of 16,000-17,000 yuan/tonne will serve as a key short-term price anchor. Zhengzhou cotton at 15,840 yuan/tonne is already near the lower bound of the cost range, limiting downside potential, though upside drivers remain absent. Yarn output for January-August reached 14.339 million tonnes, up only 0.7% year-on-year, while Xinjiang yarn output rose 17.8% to 2.57 million tonnes. Continued capacity release without matching demand growth will pressure yarn margins, which in turn will curb cotton procurement willingness.
Internationally, Fed rate hike expectations and geopolitical instability are likely to trigger periodic volatility, with ICE cotton expected to trade range-bound. For buyers, the widened price spread reduces imported cotton's cost-effectiveness, suggesting a moderate shift towards Xinjiang cotton. For exporters, the tariff relief extension provides a window, but cotton apparel's exclusion from the US reduction list means quotation strategies should account for policy uncertainty.