The domestic-import cotton price spread widened to 2,100 yuan per tonne in September, nearly 500 yuan more than at the end of August. That number matters more than the price itself, because it determines when the import window becomes attractive and how much room mills have to manoeuvre on raw material costs in the fourth quarter. Chinese customs data and industry public data point to one conclusion: this downturn was not driven by collapsing demand, but by a recovery in supply expectations colliding with macro pressure.
Supply: How Harvest Expectations Repriced the Market
The primary force behind September's reversal was an upward revision to supply expectations. The USDA's September forecast put 2026/27 global cotton production at 25.54 million tonnes, down 3.8% year on year, with consumption at 26.76 million tonnes, up 1.5%, leaving a production deficit of 1.22 million tonnes and a stock-to-use ratio of 57%, historically low. On that balance sheet alone, prices should be firm.
But markets trade marginal change. US cotton boll-opening and harvest rates ran 3 and 2 percentage points ahead of five-year averages. Brazil's harvest finished completely, with production revised up to 4.144 million tonnes. In China, Xinjiang machine-picked cotton arrived about a week earlier than last year, and the industry broadly revised up its earlier concerns about减产. The national cotton monitoring system expects 2026 national output of 7.46 million tonnes, down 290,000 tonnes year on year but still a historically high crop.
What does this mean? A tight global balance sheet is being offset by concentrated short-term supply. For mills, the issue is not availability but willingness to build inventory at current levels.
Demand: Why the Peak Season Never Peaked
Seasonal warming did occur, but it lacked force. From January to August, national yarn output reached 14.339 million tonnes, up just 0.7% year on year, while Xinjiang yarn output hit 2.57 million tonnes, up 17.8%, confirming capacity continues to concentrate in the region. Domestic textile and apparel sales rose 5.1% to 961.49 billion yuan, and exports grew 3.1% to 203.31 billion US dollars. Both domestic and external demand remain resilient.
The problem was September's performance. Mill operating rates and yarn sales ratios rose for a second consecutive month, but were down 1.5 and 0.5 percentage points respectively from a year earlier, and down 4.9 and 3.4 percentage points from first-half averages. Autumn-winter and holiday orders arrived, but volumes did not surge.
The logic is straightforward: downstream brands and traders, facing falling prices, chose to wait rather than carry inventory depreciation risk. Shorter lead times and fragmented orders are becoming the new normal for peak season. For weavers and spinners, rising sales ratios that still lag year-ago levels mean limited cash flow improvement, pushing raw material buying toward hand-to-mouth patterns.
Policy and Macro: Structural, Not Broad, Support
The late-September meeting between Chinese and US leaders produced an eight-point consensus, extended tariff relief to January next year, added US cotton to China's tariff reduction list, and covered some non-cotton home textiles on the US side. The three items need to be assessed separately.
The tariff extension supports the autumn-winter export environment, but the US list excludes cotton textile and apparel products, so the actual benefit falls short of expectations. US cotton entering China's reduction list will lower import costs, but quota constraints and high bonded stocks mean incremental volumes remain uncertain.
Meanwhile, China's state reserve cotton sales stopped on 30 September. As of 29 September, 409,000 tonnes had been offered, with a 99.25% transaction rate and an average price of 17,191 yuan per tonne. The reserve sales effectively supplemented supply and bridged the old and new crop years. With sales halted, pricing power shifts back to new crop costs.
New Crop Costs: The 16,000-17,000 Yuan Anchor
Xinjiang machine-picked cotton opening prices clustered at 7.0-7.3 yuan per kilogram, slightly above the ten-year average of 6.9 yuan, translating to lint processing costs of 16,000-17,000 yuan per tonne, at the upper end of the normal range. Ginning factories have become notably more cautious, with some large operators scaling back purchasing and most considering hedging in the futures market alongside procurement.
This cost range is the core anchor for domestic prices. The Zhengzhou main contract settlement of 15,840 yuan per tonne is already below the lower bound, meaning further declines require stronger bearish drivers. But supply pressure from concentrated new crop arrivals limits upside.
For buyers, 16,000-17,000 yuan per tonne represents a reasonable negotiation range for new crop spot, with分批 locking below the lower bound. For ginners, hedging is more appropriate than directional holding in this volatility environment. For exporters, the 2,100 yuan spread means imported cotton retains a cost advantage within quota, but currency and freight surcharges need monitoring.