International cotton prices reclaimed the 90-cent psychological mark on August 27, with the ICE December contract settling at 92.41 cents, up 3.67% on the day. This is not purely speculative—US cotton quality ratings fell 17 percentage points year-on-year, while export sales halved week-on-week. Together, these signals are repricing cost expectations across the global textile supply chain.
Event Background
The latest USDA crop progress report showed US cotton good-to-excellent ratings at only 37%, versus 54% a year ago. Field tours reported notable deterioration, and strengthening El Niño expectations heightened concerns over major producing areas. Month-to-date, ICE futures have gained over 13%, moving the price center from the 80-cent range to higher levels.
In stark contrast to tight supply, demand remains weak. For the week ending August 20, US cotton export sales netted 95,726 bales, down 54% from the previous week; sales to China were just 1,628 bales, with zero for the next marketing year. China, the world's largest cotton importer, has nearly halted purchases, suggesting the rally is driven more by supply expectations than actual demand.
Industry Impact
For textile mills, the 90-cent mark signals a new cost pressure zone. Cotton accounts for about 70% of yarn costs; each 1-cent rise in futures adds roughly 150-200 RMB per ton to 32-count combed cotton yarn. If the rally continues, profit margins will shrink significantly, especially for small and medium enterprises operating on order-based production, which may face the dilemma of taking orders at high costs and delivering at low margins.
The export slump also warrants attention. Near-zero US cotton sales to China reflect both a diversification of China's sourcing to Brazil and Australia, and domestic mills' resistance to high-priced cotton. The current inverted price spread between domestic and imported cotton has eliminated the cost advantage of imports, prompting some mills to increase domestic cotton usage. This could support domestic prices but also amplify upward pressure through linkage.
Moreover, El Niño's impact on global cotton regions cannot be ignored. Beyond the US, South Asian producers like India and Pakistan face abnormal rainfall risks. If the weather premium persists, international prices may challenge 95 or even 100 cents. Mills should manage raw material inventories dynamically to avoid cost overruns during sharp price spikes.