The internal-external cotton price spread widened from 1,601 yuan/ton to 2,100 yuan/ton within a single month. That number deserves more attention than the price decline itself. A widening spread means imported cotton is gaining a cost advantage while domestic cotton becomes less competitive. For export-oriented mills, raw material sourcing is becoming more sensitive than ever.
Three Forces Driving Prices Lower
September's decline was not driven by a single factor. The Federal Reserve resumed rate hikes, with markets expecting further tightening this year, strengthening the dollar and pressuring dollar-denominated commodities. Meanwhile, Northern Hemisphere harvest progressed smoothly. US cotton boll-opening and harvesting rates reached 70% and 17%, both ahead of five-year averages, while Brazil completed its harvest with production revised up to 4.144 million tons. Supply-side expectations recovered, coinciding with a lackluster peak season in China.
ICE cotton futures settled at 78.86 cents/lb, down 15.3% from August. The international cotton M index, converted to RMB import cost, stood at 15,215 yuan/ton, a decline of 8.4%. Zhengzhou cotton futures settled at 15,840 yuan/ton, down 7.2%. The national cotton price B index was 17,315 yuan/ton, down 4.9%. The overseas decline significantly outpaced domestic losses, directly explaining the spread widening.
New Crop: Cost Support vs. Supply Pressure
Xinjiang machine-picked cotton is being harvested about a week earlier than last year. Opening prices cluster around 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/ton. This provides some cost support for futures, limiting downside potential.
Supply pressure, however, is unavoidable. The national cotton market monitoring system projects 2026 national output at 7.46 million tons, down 290,000 tons year-on-year but still a historically high yield. After the National Day holiday, concentrated new crop arrivals will intensify supply pressure. Ginning factories have become notably more cautious, with some large enterprises scaling back procurement and processing, while most consider hedging in futures while purchasing. This behavior itself signals bearish sentiment.
Textile Demand: Resilience Remains, Peak Season Underwhelms
From January to August, national yarn output reached 14.339 million tons, up only 0.7% year-on-year. Xinjiang yarn output, however, surged 17.8% to 2.57 million tons. Production capacity continues concentrating in Xinjiang, creating sustained competitive pressure on inland mills. Textile and apparel domestic sales reached 961.49 billion yuan, up 5.1%, while exports totaled $203.31 billion, up 3.1%. Overall demand shows resilience.
The problem lies in peak season momentum. In early September, mill operating rates were 81.9% and yarn sales-to-production ratios 96.7%. Both marked a second consecutive monthly recovery, but were down 1.5 and 0.5 percentage points year-on-year, and down 4.9 and 3.4 percentage points from first-half averages. Orders have not surged meaningfully, with weaving mills purchasing mainly for immediate needs. For buyers, this means yarn prices lack strong demand-side support for significant gains.
China-US Trade: Structural Benefits, Implementation Uncertain
Late September saw eight consensus points from China-US leadership talks, with tariff relief extended to January. China's tariff reduction list includes US cotton, theoretically lowering import costs. However, the US reduction list covers only select non-cotton home textiles, excluding cotton apparel. Benefits are structural, not comprehensive.
Import quota constraints and high bonded inventory mean actual US cotton import increases remain uncertain. For export-oriented mills, autumn/winter order conditions have improved, but for cotton apparel producers, tariff costs have not materially declined.
Outlook
Domestic cotton prices will likely trade weak around new crop cost levels, with limited downside but insufficient upward drivers. International prices will fluctuate within a range, influenced by Fed policy and Middle East tensions. The internal-external spread is unlikely to narrow significantly in the short term, and imported cotton's cost-effectiveness will persist.