In December, major events such as the Central Economic Work Conference and the Federal Reserve's interest rate meeting unfolded, signaling a warming macroeconomic environment. Domestic cotton consumption continued to expand, while news of Xinjiang's planned reduction in cotton planting area next year pointed to potential supply tightening, driving up domestic cotton prices. The international market fundamentals continued to show strong supply and weak demand, with international cotton prices fluctuating weakly. The price differential between domestic and international cotton widened to its highest level in four years.
Part I: Market Review
In the international market, influenced by factors such as the concentrated harvest of cotton in the Northern Hemisphere and a shift toward caution following the Federal Reserve's interest rate cut, international cotton prices fluctuated weakly. At month-end, prices rebounded slightly due to improved expectations for U.S. cotton exports. As of December 30, the ICE Cotton futures main contract settled at 64.32 cents/lb, down 0.39 cents/lb or 0.60% from the previous month-end. The International Cotton Index (M), representing the average landed cost of imported cotton at major Chinese ports, stood at 72.75 cents/lb. This translates to an import cost of RMB 12,514/ton (based on a 1% tariff, excluding port handling fees), up RMB 15/ton or 0.12% from the previous month.
In the domestic market, new cotton sales progressed rapidly, downstream textile consumption remained resilient, concerns arose over future production declines due to Xinjiang's reduced planting area, the Central Economic Work Conference signaled next year's easing policies, and the favorable sentiment in the commodities market drove domestic cotton prices to climb continuously. As of December 30, the settlement price of the main cotton futures contract on the Zhengzhou Commodity Exchange stood at 14,510 RMB/ton, up 805 RMB/ton or 5.87% from the previous month. The National Cotton Price Index B, representing the market price of standard-grade ginned cotton in mainland China, reached 15,500 RMB/ton, an increase of 642 RMB/ton or 4.32% month-on-month. The price differential between domestic and international markets widened from 2,325 RMB/ton at the end of last month to 2,986 RMB/ton, reaching its highest level since October 2021.
Part II Analysis and Outlook
I. International Cotton Market
(1) From a macroeconomic perspective, monetary policies among major economies diverged, though their short-term impact remains limited, while international trade barriers show an escalating trend. The Federal Reserve delivered its third rate cut of the year in December as expected, lowering the federal funds rate by 25 basis points to 3.5%-3.75%. Financial markets have fully priced in these rate cuts, and the direction of future policy remains to be seen. The Bank of Japan initiated a rate hike, raising its policy rate to a 30-year high of 0.75%, but signaled that its long-term accommodative monetary stance remains unchanged, with relatively mild implications for global liquidity. On the trade front, Mexico's new tariff policy will take effect starting January 1, 2026, imposing additional import duties on non-FTA countries, with textile and apparel products facing surcharges of 10-35%. Southeast Asian nations including Vietnam, Malaysia, and Thailand are tightening restrictions on re-export trade. The EU has expanded its trade investigation measures against China to nearly 100 items, covering steel, chemicals, machinery, textiles, and other sectors. Overall, recent monetary policy has limited short-term impact on the cotton market, while escalating trade barriers pose challenges for China's exports.
(2) From the perspective of supply and demand dynamics, global cotton supply remains ample this season but may tighten next season. According to the USDA's December supply and demand forecast, global cotton production for 2025/26 is projected at 26.08 million tons, down 60,000 tons from the previous season but up 110,000 tons year-on-year. consumption is projected at 25.82 million tons, down 60,000 tons from the previous year and 70,000 tons lower than the current year, resulting in a surplus of 260,000 tons. Overall, the global cotton supply-demand balance remains slightly loose. Substantial production increases in China and Brazil offset declines in Australia and the United States, while consumption remains weak, with minor downward revisions in cotton usage across major consumer nations like China and Bangladesh. Currently, cotton processing is nearing completion in China, the United States, and Pakistan, with market release progress largely on par with previous years. India's cotton release pace has been slower. Following the government's relaxation of moisture content requirements for raw cotton purchases, CCI acquisitions have accelerated. By early December, cumulative market releases reached 1.438 million tons, with 34% purchased by CCI and 66% flowing into local spot markets. Southern Hemisphere cotton planting is underway. Brazil is currently at peak planting season, while Australia has completed its planting. Expected declines in planted acreage may tighten supply for the next season. Forecasts indicate Brazil's 2026 planting area will decrease by 5% to 2.05 million hectares, while Australia's planted area is projected to fall by 22% to 406,000 hectares.
(3) From the perspective of export supply, major global cotton-producing countries have maintained relatively robust export growth. Australia exported 210,000 metric tons of cotton in October, setting a new monthly export record. Cumulative exports from August to October reached 549,000 metric tons, up 7.2% year-on-year, primarily destined for China, India, Vietnam, and other countries. Brazilian cotton exports reached 402,000 metric tons in November, the highest level in 10 months. Cumulative exports from August to November totaled 953,000 metric tons, a 10.5% year-on-year increase and the highest level since the 2020/21 season. Major destinations included China, India, and Bangladesh. As of December 12, cumulative U.S. cotton shipments reached 605,100 metric tons, completing 22.8% of the export forecast. Major destinations included Vietnam, Pakistan, and Mexico, with Chinese purchases gradually increasing since late November. Additionally, India imported 460,000 metric tons cumulatively from August to November, fulfilling 75% of the USDA's import forecast. As its cotton import tariff exemption policy expires at the end of December, India has recently slowed its procurement of foreign cotton.
(IV) From a consumption perspective, Southeast Asian textile and apparel exports have weakened recently, though the global textile industry outlook is expected to improve. In November, only India saw apparel exports grow by 11% year-on-year, while other Southeast Asian countries experienced widespread declines. Specifically, China, Vietnam, and Pakistan recorded year-on-year decreases of 5.2%, 2.6%, and 3% respectively, while Bangladesh's apparel exports fell by 5.0%. China's textile and apparel exports have declined year-on-year since the beginning of this year, while other Southeast Asian countries have seen positive growth. From January to November, China's cumulative textile and apparel exports decreased by 1.9%, while Vietnam and Pakistan's cumulative exports grew by 7% and 4% year-on-year, respectively. India and Bangladesh's cumulative apparel exports increased by 4% and 3% year-on-year. Additionally, according to the latest survey by the International Textile Federation (ITF), optimism about global textile industry operations over the next six months has significantly increased, influenced by factors such as stabilizing foreign trade conditions. Meanwhile, Vietnam's textile exports have shown strong performance, with most leading enterprises having orders booked through the end of the first quarter of 2026, and some companies currently negotiating orders for the second quarter.
II. Domestic Cotton Market
(1) From a macroeconomic perspective, China's economic growth outlook for this year remains positive, with continued accommodative policies and increased efforts to boost consumption expected next year. The World Bank and International Monetary Fund have successively raised their 2025 growth projections for China to 4.9% and 5.0%, respectively. Amid rising global economic uncertainties, China has stabilized its fundamentals through policy steadfastness and endogenous momentum. Furthermore, the Central Economic Work Conference explicitly stated that the accommodative policy stance will continue next year, prioritizing “domestic demand as the main driver and building a robust domestic market.” Measures to boost consumption include deepening targeted initiatives, expanding high-quality goods and services supply, optimizing policies for new economic entities and new social forces, and eliminating unreasonable restrictions in consumption sectors. Recently, the Ministry of Finance and the People's Bank of China held consecutive meetings, confirming the implementation of a more proactive fiscal policy and the adherence to a moderately loose monetary policy. They will expand the scale of expenditures and strengthen support for key sectors to create a stable environment for expanding domestic demand.
(2) From the supply perspective, sales of new cotton have been relatively brisk this year, with demand for imported cotton showing slight improvement recently. Supported by downstream consumption, the sales progress of new cotton has been rapid, with approximately half of the new cotton ownership having been transferred from ginning mills, significantly reducing processing risks compared to previous years. According to data from the National Cotton Market Monitoring System and the China Fiber Inspection Bureau, as of December 25, the national sales rate of new cotton reached 50.7%, up 25.1 percentage points year-on-year. The volume of new cotton inspected by public authorities during the same period was 6.064 million tons, an increase of 13.76% year-on-year. Driven by factors such as widening domestic-international price differentials and reciprocal tariff reductions between China and the US, China's cotton import demand has improved. Customs data shows November cotton imports reached 119,000 tons, up 9.8% year-on-year and 33.4% month-on-month. Cumulative imports from September to November totaled 303,000 tons. Additionally, the Xinjiang Uygur Autonomous Region government's recent plan to structurally reduce cotton planting area for 2026 has provided some support to domestic cotton prices.
This period's forecast for China's cotton production, consumption, and inventory has been adjusted as follows: - Production for the 2025/26 season is lowered by 20,000 tons compared to the previous forecast. - Consumption is raised by 160,000 tons. - Ending stocks are reduced by 180,000 tons. - The ending stock-to-use ratio is lowered by 3.67 percentage points.
(3) From a consumption perspective, both domestic and export sales at the terminal level showed strong performance, while the spinning segment experienced marginal weakening but remained better than last year. Driven by sustained domestic consumption stimulus policies, e-commerce promotions, and improved Sino-US trade relations, domestic sales of textiles and apparel grew steadily, and foreign trade exports rebounded. In November, domestic sales of textile and apparel products reached CNY154.16 billion, the highest level this year, up 3.5% year-on-year. Exports of textile and apparel products totaled 23.87 billion USD, down 5.1% year-on-year, with the decline narrowing by 7 percentage points from the previous month. Among these, textile exports amounted to 12.28 billion USD, achieving a 1% increase despite a high base from the same period last year. At the intermediate stage, although the textile market weakened, it remained stronger than the same period last year, exerting robust pull on cotton consumption. In November, domestic yarn production decreased by 2.3% year-on-year, marking the first year-on-year decline this year, while Xinjiang saw a 13.9% increase. From January to November, domestic yarn production grew by 1.8% year-on-year, with Xinjiang recording a 21.5% increase. In early December, the operating rate of surveyed textile enterprises stood at 82.8%, down 1.7 percentage points month-on-month but up 6.8 percentage points year-on-year.
Key Conclusions
As 2025 draws to a close, China's macroeconomic environment maintains a loose stance, with policies to expand domestic demand and boost consumption continuing to take effect. Textile consumption remains resilient, and market sentiment is generally positive. Internationally, accelerated exports from major producing countries and expectations of reduced planting areas in the Southern Hemisphere have provided support for the bottom of foreign cotton prices. Overall, the outlook for cotton prices is cautiously optimistic. Key focus areas for early next year include the issuance of domestic tariff quotas for the new season and shifts in cotton planting intentions in the Northern Hemisphere. Additionally, under the influence of uncertainties such as escalating international trade barriers, the possibility of temporary downward pressure cannot be ruled out.
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