Reserve cotton auctions entered their eighth week with unabated enthusiasm. During Aug 31-Sep 4, all 40,000 tons offered were sold, at an average price of 17,520 CNY/ton, up from around 17,400 CNY the previous week, with an average premium of 951 CNY/ton. This level is notably higher than a year ago, reflecting tight supply-demand in textile raw materials. For buyers, this means the cost floor has shifted upward, and pressure is building for yarn price increases.
Transaction Structure and Regional Patterns
By category, Xinjiang cotton averaged 17,682 CNY/ton (3128-equivalent 18,359 CNY/ton) with a premium of 1,131 CNY/ton, while imported cotton averaged 17,511 CNY/ton (3128-equivalent 18,169 CNY/ton) with a premium of 941 CNY/ton. The higher premium for Xinjiang cotton indicates market preference for domestic high-grade fiber, and also reflects quota constraints and price competitiveness of imports. By purchasing enterprise location, Shandong, Jiangsu, and Hunan provinces together accounted for 23,000 tons, or 57.28% of the weekly total. This concentration is not coincidental—Shandong and Jiangsu are major spinning provinces, while Hunan has expanded rapidly due to industrial transfer. High transaction concentration suggests faster inventory depletion in these regions, and subsequent restocking may continue to support cotton prices.
Policy Regulation and Market Expectations
From the launch on July 20 to Sep 4, cumulative reserve sales reached 280,718 tons, with a 100% turnover rate, average price of 17,300 CNY/ton (3128-equivalent 17,949 CNY/ton), and average premium of 1,365 CNY/ton. Notably, the cumulative premium is higher than the weekly figure, indicating more intense bidding earlier, though recent activity has cooled slightly but remains elevated. Policy-wise, reserve sales aim to stabilize prices and secure supply, but the 100% turnover shows strong market absorption, with the effect more about providing a floor than capping prices. During the gap before the new crop, reserve cotton serves as the main supply channel, and its transaction price effectively anchors the short-term market.
Industrial Transmission and Cost Pressure
The rising reserve cotton prices are impacting downstream yarn and fabric mills. At the current 3128-equivalent price of 18,179 CNY/ton, the raw material cost for 32s carded yarn is close to 26,000 CNY/ton, while actual yarn prices lag, squeezing mill margins. Large enterprises can hedge with earlier low-cost inventories, but small and medium spinners face immediate pressure. This cost pass-through lag may lead to later yarn price catch-ups, affecting fabric purchasing decisions. For foreign trade, currency fluctuations and weak overseas demand limit cost transfer, prompting cautious order-taking and possibly more short-term and small orders.
Outlook and Recommendations
In the short term, reserve sales will continue until the new crop arrives, and policy remains flexible. However, international cotton prices are volatile due to weather and export policies in major producing countries, affecting the attractiveness of imported cotton. Domestically, weather in Xinjiang is normal, and new crop output is expected stable, but harvest may be delayed, making reserve cotton the market focus during the transition. Cotton prices are expected to remain high with limited downside in mid-September.