The spread between domestic and international cotton prices widened from 1,601 yuan per tonne at the end of August to 2,100 yuan by late September. That gap matters more than the price decline itself. While international cotton fell 15.3% month-on-month, domestic spot prices dropped only 4.9%, sharply amplifying the comparative advantage of imported cotton. For mills with rigid demand, this is not merely a market fluctuation but a window in which procurement structure may be forced to adjust.
Price Signals: Cost Revaluation Behind Divergent Declines
The international cotton M index stood at 92.39 cents/lb at the end of September, translating to an import cost of about 15,215 yuan/tonne under the 1% tariff scheme, while the domestic B index remained at 17,315 yuan/tonne. A gap exceeding 2,000 yuan means imported cotton becomes significantly more attractive to spinners within quota limits. The Zhengzhou cotton futures settlement price of 15,840 yuan/tonne sits closer to the expected new crop processing cost range.
This divergence is driven by supply recovery during the Northern Hemisphere harvest. US cotton boll-opening and harvesting rates led the five-year average by 3 and 2 percentage points respectively, while Brazil completed its harvest with production forecast raised to 4.144 million tonnes. The supply narrative shifted from "reduction concerns" to "bumper crop delivery," hitting the international market first.
Domestically, reserve cotton sales ended on September 30, with 409,000 tonnes offered and a 99.25% clearance rate at an average price of 17,191 yuan/tonne. This round effectively filled the supply gap before new crop arrival, with commercial inventory reaching 1.8097 million tonnes by mid-September, 634,000 tonnes higher year-on-year. With reserves withdrawn, pricing power returns to new crop costs.
Industry Transmission: Xinjiang Capacity Release and Weak Peak Season
Xinjiang machine-picked cotton harvesting started about a week earlier than last year, with opening prices at 7.0-7.3 yuan/kg, slightly above the decade average of 6.9 yuan/kg, translating to lint processing costs of 16,000-17,000 yuan/tonne. Ginning mills have become notably conservative, with some large enterprises reducing procurement volumes and most choosing to hedge in futures while purchasing. This "no betting on the market" approach reflects a clear awareness of supply pressure at the processing end.
Downstream data tells a different story. National yarn output for January-August reached 14.339 million tonnes, up only 0.7%, while Xinjiang yarn output hit 2.570 million tonnes, surging 17.8%. The trend of capacity concentration in Xinjiang remains intact, but the marginal national growth suggests yarn output in other regions may be contracting. Textile and apparel domestic sales reached 961.49 billion yuan and exports 203.31 billion USD, growing 5.1% and 3.1% respectively, indicating end-demand resilience.
The problem lies in peak-season momentum. Mill operating rates in early September were 81.9% and yarn sales-to-production ratios 96.7%, marking a second consecutive monthly recovery but still 1.5 and 0.5 percentage points below year-earlier levels, and 4.9 and 3.4 points below first-half averages. Autumn-winter orders have been placed and stocking has begun, but the volume is insufficient to absorb incoming new crop supply.
Macro Variables: Structural Benefits of Tariff Adjustments
Among the consensus reached at the US-China meeting, tariff reductions were extended to January next year, US cotton was included in China's tariff reduction list, and some non-cotton home textiles were covered by US reductions. These three items affect the cotton textile chain unevenly. Lower US cotton import costs support international prices, but actual incremental volumes are constrained by quota limits and high bonded inventory. Tariff benefits for non-cotton home textiles bypass cotton textile and apparel, providing no direct boost to the most cotton-intensive categories.
Federal Reserve rate hike expectations remain a pressure source hanging over commodities. Rising long-end Treasury yields strengthen the dollar, and with global liquidity tightening, the rebound space for international cotton is compressed. Variables such as Middle East tensions add to the probability of periodic volatility.