Cotton prices weakened across the board in September, yet the spread between domestic and imported cotton widened rather than narrowed. That combination signals a three-way tug-of-war among cost, currency, and order timing—not a straightforward buying opportunity.
Three Forces Driving Prices Lower
At the macro level, the Federal Reserve restarted rate hikes after a three-year pause, with markets pricing in another increase before year-end. Rising long-end Treasury yields strengthened the dollar, directly pressuring dollar-denominated cotton. On the industry side, Northern Hemisphere harvests progressed smoothly—US cotton boll-opening and harvest rates led five-year averages by 3 and 2 percentage points respectively—while Brazil's crop estimate was revised up to 4.144 million tons. Xinjiang's减产 concerns were gradually corrected as harvest approached. On the demand side, the traditional "Golden September" peak season underdelivered, with no clear surge in orders.
By end-September, the ICE cotton futures settlement price stood at 78.86 cents/lb, down 15.3% from August. The international cotton M index, converted to RMB import cost, was 15,215 yuan/ton, a decline of 8.4%. Zhengzhou cotton futures settled at 15,840 yuan/ton, down 7.2%, while the national cotton price B index fell 4.9% to 17,315 yuan/ton. The domestic-import spread widened from 1,601 yuan/ton at end-August to 2,100 yuan/ton.
For buyers, the implication is direct: imported cotton's price advantage is eroding while Xinjiang cotton's value proposition improves. But quota constraints and high bonded stocks mean import volumes won't materialize quickly.
Supply Certainty vs. Demand Uncertainty
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/ton. By mid-September, commercial inventories reached 1.8097 million tons, up 634,000 tons year-on-year. Supply is well secured before the new crop hits the market—that's the certain part.
Xinjiang machine-picked cotton harvest started about a week earlier than last year, with opening prices at 7.0-7.3 yuan/kg, slightly above the ten-year average of 6.9 yuan/kg. Converted lint processing costs range from 16,000-17,000 yuan/ton, at the upper end of the normal range. Ginning factories have become notably more cautious, with some large enterprises scaling back purchasing and processing, while most consider hedging in futures while buying. 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 harvest.
Demand tells a different story. From January to August, national yarn output reached 14.339 million tons, up only 0.7% year-on-year. Xinjiang yarn output hit 2.57 million tons, up 17.8%, as capacity continues to release. Textile and apparel domestic sales totaled 961.49 billion yuan, up 5.1%, while exports reached $203.31 billion, up 3.1%. In early September, mill operating rates were 81.9% and yarn sales-to-production ratios 96.7%—both up for a second consecutive month but down 1.5 and 0.5 percentage points year-on-year, and down 4.9 and 3.4 percentage points from first-half averages.
The core contradiction: capacity expansion is outpacing demand recovery. Xinjiang's rapid yarn capacity release is reshaping domestic supply dynamics, putting inland mills under more direct competitive pressure.
Structural Impact of Policy Variables
China-US trade relations stabilized short-term, with eight consensus points reached at the end-September meeting. Tariff relief was extended to January next year, benefiting autumn/winter export conditions. China's tariff reduction list includes US cotton, which will lower import costs and enhance US cotton competitiveness, providing some support for international prices. However, quota constraints and high bonded stocks limit actual incremental volumes. The US tariff reduction list covers only some non-cotton home textiles, excluding cotton textile and apparel—a smaller-than-expected benefit.
For exporters, the tariff window for autumn/winter orders is clear, but cotton apparel tariff costs haven't materially improved. Procurement decisions should distinguish between home textiles and apparel: the former can lock in orders early, while the latter requires waiting for complete tariff details.
Overall, as new cotton arrives, supply pressure will increase notably. Downstream demand recovers seasonally but lacks strength. Domestic cotton prices will likely trade weakly around new crop costs with limited downside. International prices will remain range-bound amid Fed rate expectations and geopolitical uncertainty.