The domestic-import cotton price spread widened from 1,601 to 2,100 yuan per tonne within a single month. That number deserves more attention than the price decline itself. Both domestic and international cotton prices fell in September, but the yuan-denominated cost of imported cotton dropped faster than domestic spot prices, pushing the spread wider. For mills, this signals a shifting cost comparison rather than a simple price drop.
Three Forces Behind the Decline
On the macro side, the Fed restarted rate hikes after a three-year pause and signaled further tightening within the year, strengthening the dollar and pressuring dollar-denominated commodities. On the industry side, harvest progress in the Northern Hemisphere led to upward revisions of U.S. and Xinjiang cotton output expectations, squeezing out earlier supply-driven premiums. On the demand side, the traditional textile peak season proved lackluster, with no significant order surge and limited downstream willingness to accept high raw material prices.
By end-September, the ICE cotton futures main contract settled at 78.86 cents/lb, down 15.3% from end-August. The international cotton M index stood at 92.39 cents/lb, equivalent to an import cost of 15,215 yuan/tonne. The Zhengzhou Commodity Exchange cotton main contract settled at 15,840 yuan/tonne, down 7.2%, while the national cotton price B index fell 4.9% to 17,315 yuan/tonne. The sharper drop in overseas markets directly explains the wider spread.
Supply Variables Are Shifting
Reserve cotton sales ended on September 30. A total of 409,000 tonnes were listed, with a 99.25% transaction rate at an average price of 17,191 yuan/tonne, equivalent to 17,851 yuan/tonne for grade 3128B. This round of auctions effectively supplemented mills' rigid demand and provided a buffer for the transition between crop years. By mid-September, commercial inventories stood at 1.8097 million tonnes, 634,000 tonnes higher than a year earlier, ensuring adequate supply before the new crop arrives.
Xinjiang machine-picked cotton harvesting started about a week earlier than last year, with opening prices concentrated at 7.0-7.3 yuan/kg, slightly above the ten-year average of 6.9 yuan/kg. This translates to lint processing costs of 16,000-17,000 yuan/tonne. Ginners are notably cautious, with some large enterprises cutting back on procurement and processing, while most prefer to hedge in the futures market while purchasing rather than holding unilateral spot exposure. Concerns about production cuts are fading. The national cotton market monitoring system projects 2026 national output at 7.46 million tonnes, down 290,000 tonnes year-on-year but still a historically high level.
The global picture is also tight. The USDA's September forecast puts 2026/27 global output at 25.54 million tonnes, down 3.8% year-on-year, with consumption at 26.76 million tonnes, up 1.5%. The production-demand gap reaches 1.22 million tonnes, and the stock-to-consumption ratio falls to a historically low 57%. Brazil's harvest has fully ended, with output revised up to 4.144 million tonnes and August exports reaching 106,000 tonnes, up 37.3% year-on-year, making it a relatively strong supplier in the international market.
Demand Resilience but Weak Peak Season
From January to August, national yarn output reached 14.339 million tonnes, up 0.7% year-on-year, while Xinjiang yarn output hit 2.57 million tonnes, up 17.8%, reflecting continued capacity release. Textile and apparel domestic sales totaled 961.49 billion yuan, up 5.1%, and exports reached 203.31 billion USD, up 3.1%, showing overall resilience in both domestic and external demand.
However, the September peak season warmed less than expected. Mill operating rates and yarn sales ratios stood at 81.9% and 96.7% respectively. Although both rose for a second consecutive month, they were 1.5 and 0.5 percentage points lower than a year earlier, and 4.9 and 3.4 percentage points below the first-half average. Order placement was slow, and weaving mills stocked mainly for immediate needs, suggesting end-users remain pessimistic about future prices.
Stabilizing China-U.S. trade relations provide a partial offset. Tariff relief was extended to January next year, benefiting autumn and winter export orders. China's tariff reduction list includes U.S. cotton, theoretically lowering import costs, but actual gains remain uncertain given quota constraints and high bonded inventories. The U.S. reduction list covers only some non-cotton home textiles, not cotton textile and apparel products, falling short of expectations.
In summary, supply pressure will increase notably as the new crop arrives, while seasonal demand recovery remains insufficient. Domestic cotton prices are likely to trade weakly around new-crop costs with limited downside. International prices will likely remain range-bound amid Fed policy uncertainty and geopolitical tensions.