Report Summary 1. Report Industry Investment Rating No information provided. 2. Core Viewpoint The expectation of a reduction in Xinjiang's cotton planting area in the next year and the increase in the downstream industry's operating rate since November 2025 have driven up cotton prices. In the medium to long term, with the reduction in planting area and positive macro - expectations, cotton prices still have room to rise. However, due to the large short - term increase, it is necessary to wait for a correction before making long positions [2][21]. 3. Summary of Relevant Contents Driving Factors for Cotton Price Increase - The expectation of a reduction in Xinjiang's cotton planting area is the main driving factor for the rise of Zhengzhou cotton futures since December last year. The cotton planting subsidy policy in Xinjiang will expire in the 2025/26 season, and the new policy is expected to reduce the subsidized planting area by about 10% compared to 2025 [2][5]. - Since November 2025, the increase in the downstream industry's operating rate is also a driving factor for the rise in cotton prices. As of the week of January 16, the spinning mill operating rate was 64.6%, an increase of 8.6 percentage points year - on - year; the weaving mill operating rate was 35.2%, an increase of 10.2 percentage points year - on - year. The increase may be related to the late Spring Festival in 2026. Although domestic cotton production has increased significantly this year, the national cotton sales progress has also increased significantly year - on - year, indicating good downstream demand [6]. International Cotton Market and Import Situation - According to USDA data, the global cotton production forecast for the 2025/26 season in January is 26 million tons, a decrease of 80,000 tons from the December forecast and an increase of 200,000 tons from the previous year. The inventory - to - consumption ratio is 62.63%, a decrease of 1.42 percentage points from the December forecast and an increase of 0.62 percentage points from the previous year. The US production forecast in January is 3.03 million tons, a decrease of 76,000 tons from the December forecast. Brazil's production forecast remains at 4.08 million tons, India's production is adjusted down by 110,000 tons to 5.12 million tons, and China's production is adjusted up by 220,000 tons to 7.51 million tons [15]. - In December 2025, China imported 180,000 tons of cotton, an increase of 40,000 tons year - on - year. In 2025, China's cumulative cotton imports were 1.08 million tons, a decrease of 1.56 million tons year - on - year. Brazil's cotton exports in December were 450,000 tons, an increase of 100,000 tons year - on - year. Exports to China in December were 146,000 tons, an increase of 60,000 tons year - on - year. As of the week of January 8, the US current - year cotton export sales were 80,600 tons, and the cumulative export sales were 1.6231 million tons, a decrease of 191,000 tons year - on - year. Exports to China were 13,600 tons that week, and the cumulative exports were 85,300 tons, a decrease of 71,200 tons year - on - year. It is expected that China's cotton imports in January will increase month - on - month, but the increase may be small [16].

Core Viewpoint - The domestic cotton price in China is expected to experience fluctuations in 2025, showing a trend of "stability followed by decline, then recovery" due to various factors including U.S. tariffs and domestic consumption policies [1] Group 1: Domestic Cotton Price Trends - In 2025, the overall domestic cotton price index is projected to fluctuate, with a minimum drop to 14,100 CNY/ton and a maximum rise to 15,609 CNY/ton during the year [1] - The average annual price for the cotton price index is expected to be 14,903 CNY/ton, reflecting a year-on-year decrease of 6.7% [1] - By December, domestic cotton prices continued to rise, supported by favorable macro policies and a strong textile market, reaching a peak of 15,556 CNY/ton [2] Group 2: Futures Market Dynamics - The futures market showed a bullish trend with increased participation, as the main contract CF2605 rose from 13,760 CNY/ton at the beginning of the month to 14,550 CNY/ton by the end [4][5] - The average settlement price for the main Zheng cotton contract was 14,009 CNY/ton, marking a month-on-month increase of 467 CNY [5] Group 3: Long Staple Cotton Demand and Pricing - Demand for long staple cotton was weak, leading to a slight price decline, with the price for 137-grade long staple cotton at 24,960 CNY/ton, down 40 CNY from the previous month [7] - The average transaction price for 137-grade long staple cotton was 24,896 CNY/ton, reflecting a month-on-month decrease of 104 CNY [7] Group 4: International Market Conditions - The international cotton market faced challenges, with prices initially declining before a slight rebound, resulting in a widening price gap between domestic and international markets [7] - The average price for imported cotton was 73.62 cents/pound, down 0.7% month-on-month, with a significant price gap of 673 CNY compared to the domestic cotton price index [7][10] Group 5: Cotton Yarn Pricing and Inventory Management - Cotton yarn prices increased in line with rising cotton prices, with the average price for 32-count pure cotton yarn at 20,901 CNY/ton, up 337 CNY month-on-month [10] - Due to limited new orders and year-end cash flow pressures, some spinning mills increased their inventory management efforts [10]