Cotton Price Spread Widens to 2,100 Yuan: The Pricing Game Before New Crop Arrives

The spread between domestic and imported cotton widened from 1,601 to 2,100 yuan per ton in September — a more telling signal than the price decline itself. ICE cotton futures settled at 78.86 cents per pound at month-end, down 15.3% from August, while Zhengzhou cotton fell 7.2% to 15,840 yuan per ton. Imported cotton's comparative advantage is recovering fast, and the support base for domestic prices is being repriced.

Three Supply-Side Forces Pressuring Prices

An early northern hemisphere harvest is the direct driver. US cotton boll-opening and harvesting rates led the five-year average by 3 and 2 percentage points respectively. Brazil's harvest has fully concluded, with production revised up to 4.144 million tons. Xinjiang machine-picked cotton started about a week earlier than last year, with opening prices at 7.0-7.3 yuan per kilogram, translating to lint processing costs of 16,000-17,000 yuan per ton. The new crop cost line sits near current futures prices, meaning hedging pressure will be significant.

Reserve cotton sales ended on September 30, with 409,000 tons listed and a 99.25% transaction rate at an average price of 17,191 yuan per ton. This effectively filled the supply gap before the new crop, with commercial inventory at 1.8097 million tons by mid-September, up 634,000 tons year-on-year. But the end of reserve sales does not mean tightening supply — quite the opposite. New cotton will arrive after the National Day holiday, shifting the market from policy supplementation to self-sufficiency.

The global balance sheet remains tight. USDA's September forecast puts 2026/27 global production at 25.54 million tons, down 3.8% year-on-year, with consumption at 26.76 million tons and a production deficit of 1.22 million tons. The stock-to-use ratio falls to 57%, historically low. Yet the tight balance sheet has not supported prices because the market is trading immediate supply looseness, not forward deficits.

Demand: Seasonal Uptick But Below Expectations

The seasonal recovery in textiles is real but weaker than expected. From January to August, national yarn output reached 14.339 million tons, up only 0.7% year-on-year, while Xinjiang yarn output surged 17.8% to 2.57 million tons. Xinjiang capacity continues to release, keeping yarn supply growing rapidly, but inland mill operating rates have limited upside. In early September, mill operating rates were 81.9% and yarn sales-to-production ratios 96.7%, both up for a second month but down 1.5 and 0.5 percentage points from last year, and 4.9 and 3.4 points below first-half averages.

Domestic and export demand remain resilient. From January to August, textile and apparel domestic sales reached 961.49 billion yuan, up 5.1%, while exports totaled $203.31 billion, up 3.1%. But order structure is shifting — autumn/winter and holiday orders have been placed, with spinning and weaving mills stocking up, yet no significant volume surge has appeared. For buyers, this means mills are cautious with raw material inventories and will not lock in cotton at high prices, favoring hand-to-mouth procurement.

Short-term stabilization in China-US trade relations provides some support. The late-September summit produced an eight-point consensus, extending tariff relief to January and including US cotton in China's tariff reduction list. But benefits are structural: the US reduction list covers only some non-cotton home textiles, not cotton textile and apparel, so actual incremental demand needs verification. For US cotton exports, quota constraints and high bonded inventory remain hard limits.

Price Outlook and Procurement Timing

Domestic cotton prices will likely trade weakly around new crop costs, with limited downside. The cost line at 16,000-17,000 yuan per ton is near futures levels, and further declines require stronger bearish drivers. Upside is also capped — concentrated new crop arrivals, cautious ginning mill purchases, and unremarkable downstream orders all limit rebounds.

International cotton prices are likely to remain range-bound. Fed rate expectations and Middle East instability will bring periodic volatility, but low global stock-to-use ratios provide a floor. With the spread at 2,100 yuan per ton, imported cotton's advantage is clear, but whether it translates into actual procurement depends on quota issuance and bonded inventory digestion.

For Buyers - New crop arrivals create bargaining room; lock in medium- to long-term orders in batches rather than concentrating purchases - Monitor the price spread; if it stays above 2,000 yuan per ton, imported cotton substitution value rises — evaluate quota usage timing - Keep raw material inventories neutral to low, buy as needed, avoid chasing futures rebounds

For Mills - Ginning mills are notably more cautious; some large firms are cutting purchase and processing volumes. Hedge in futures while purchasing to avoid single-sided spot exposure - Xinjiang yarn capacity continues to release; inland mills should focus on differentiated products as conventional yarn cost competition intensifies - New crop processing costs at 16,000-17,000 yuan per ton; hedging can lock in processing margins when futures trade at a premium

For Exporters - Tariff relief extended to January improves the short-term export environment, but cotton textiles and apparel are not in the US reduction list — leave cost room for policy shifts in quotes - US cotton inclusion in China's tariff reduction list may lower import costs, but quota constraints limit actual volume — avoid over-betting - Watch Fed rate moves and Middle East impacts on exchange rates; consider raising hedge ratios for cotton textile export orders