At 17,303 yuan per ton, the floor price for central reserve cotton sales for the week of September 7-11, 2026, continues a multi-week decline, nearly a thousand yuan lower than the first week of July. For textile mills, this is not just a change in procurement costs but a signal to reassess inventory strategies.
A Tilted Supply-Demand Balance
The floor price, based on the standard grade 3128B, is adjusted weekly. Recent trends show a clear downward path, with September's first week dropping to 17,303 yuan/ton, significantly weaker than in August. This reflects both supply pressure—commercial cotton inventories are higher than last year—and sluggish demand, as downstream mills stick to hand-to-mouth purchasing amid short and small orders.
Reserve cotton acts as a market stabilizer, and its floor price trend is often seen as a policy signal. Consecutive cuts indicate regulators are comfortable letting prices move toward market equilibrium. This reinforces bearish sentiment, prompting some traders to offload stocks, further pressuring spot prices.
Price Transmission: Profit Redistribution from Cotton to Yarn
A lower floor price directly reduces mills' raw material costs. With about 0.85 tons of yarn produced per ton of cotton, a 100 yuan/ton drop in cotton costs reduces yarn costs by roughly 85 yuan/ton. With grey fabric and fabric prices relatively stable, this leaves more room for mill margins.
However, not all mills benefit equally. Large mills with ample capital and storage can buy in batches at low prices, while small and medium mills, constrained by cash flow, often maintain low inventories and miss the trough. This may widen profit disparities across the industry.
Moreover, a lower domestic price narrows the advantage of imported cotton. Some export-oriented mills may switch from foreign cotton to reserve cotton, supporting domestic consumption, though the extent depends on the spread between domestic and international prices.
New Crop Approaching: A Critical Game
Mid-September marks the start of hand-picked cotton harvest in Xinjiang, with machine-picked cotton flooding the market after October. High production expectations suggest opening prices will be lower than last year. The reserve floor price cut may be paving the way for new cotton pricing, preventing a high-open-low-go scenario.
For mills, this is a delicate juncture. Reserve auctions can satisfy short-term replenishment with transparent pricing, but new cotton may be cheaper. Overstocking now risks inventory devaluation. A rational approach is to maintain moderate inventory based on order books, avoiding both missing low prices and excessive hoarding.
Historically, reserve sales periods offer good windows for building stocks. But this year's strong harvest expectations mean the downward channel may not be closed. Mills need to finely calculate the cost difference between hand-to-mouth buying and strategic stockpiling rather than blindly following past patterns.