The internal-external cotton price spread widened to 2,100 yuan/ton in September, up nearly 30% from 1,601 yuan/ton at the end of August, signaling a rapidly accumulating price advantage for imported cotton. ICE cotton futures settled at 78.86 cents/lb, down 15.3% for the month, while Zhengzhou cotton closed at 15,840 yuan/ton, down 7.2%. The overseas market fell harder than the domestic one, naturally widening the spread. The drivers: Fed rate hike expectations, upward revisions to Northern Hemisphere production, and a weaker-than-expected textile peak season in China.
Three Forces Pushing Prices Down
On the macro side, the Fed restarted rate hikes after a three-year pause, with markets expecting another increase within the year. Rising long-end US Treasury yields strengthened the dollar, pressuring commodities broadly. Cotton, with its strong financial attributes, was hit first.
On the supply side, 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 revised up to 4.144 million tons. Earlier concerns about Xinjiang's production cut were gradually corrected as harvesting progressed. The national cotton market monitoring system estimates China's 2026 cotton output at 7.46 million tons, down only 290,000 tons year-on-year, still a historically high yield.
On the demand side, September saw seasonal warming but no significant order surge. Mill operating rates at 81.9% and yarn sales rates at 96.7% marked a second consecutive monthly recovery, yet were 1.5 and 0.5 percentage points below last year, and 4.9 and 3.4 points below the first-half average. A weak peak season is the key reason cotton prices lost domestic demand support.
New Crop Costs and Ginning Sentiment
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. This translates to lint processing costs of 16,000-17,000 yuan/ton, at the upper end of the normal range.
What does this cost range mean? For ginners, lint costs above 16,000 yuan/ton are already inverted against Zhengzhou cotton's 15,840 yuan/ton. Ginners have become notably more cautious, with some large enterprises scaling back procurement and most choosing to hedge in futures while purchasing, avoiding unilateral spot exposure.
For spinners, reserve cotton sales are set to stop on September 30. Cumulative listings reached 409,000 tons with a 99.25% transaction rate and an average price of 17,191 yuan/ton, effectively meeting rigid demand. But after the new crop hits the market en masse, supply pressure will rise significantly. Commercial inventory stood at 1.8097 million tons in mid-September, 634,000 tons higher than last year, ensuring supply before the new crop arrives but potentially creating temporary oversupply afterward.
Structural Benefits from US-China Trade
The late-September US-China summit produced an eight-point consensus, extending tariff exemptions to January next year, a positive for autumn/winter export conditions. China's tariff reduction list includes US cotton, which will lower import costs, but actual incremental volume remains uncertain due to quota constraints and high bonded inventory.
More critically, the US reduction list covers only some non-cotton home textiles, excluding cotton textiles and apparel. This means direct benefits for the cotton textile chain are below expectations, and exporters should not over-rely on policy dividends.
Trend Judgment and Practical Advice
Given supply-demand and macro variables, domestic cotton prices are likely to trade weakly around new crop costs with limited downside, while international prices are expected to remain range-bound amid Fed rate hike expectations and Middle East tensions.