The average transaction price of reserve cotton fell for a second consecutive trading day, dropping 62.64 yuan/ton to 17,339.91 yuan/ton on September 8. Although all 8,009.78 tons offered were sold, the average premium narrowed to 636.98 yuan/ton, a marked cooling from the four-figure premiums seen in early August. This is not a one-day fluctuation but a signal that market sentiment is shifting from panic buying to rationality.
Signals in the Transaction Structure
As of September 8, cumulative reserve cotton listings and transactions both reached 296,734.8987 tons, maintaining a 100% transaction rate, but the average price of 17,304.26 yuan/ton has retreated from earlier highs. The range between the highest price of 19,370 yuan/ton and the lowest of 16,060 yuan/ton indicates that mills are no longer bidding without cost consideration. More notably, category divergence has emerged: imported cotton averaged 17,411.46 yuan/ton (equivalent to 18,064.14 yuan/ton on a 3128B basis) with an average premium of 1,391.20 yuan/ton, while Xinjiang cotton averaged 16,996.85 yuan/ton (17,627.77 yuan/ton equivalent) with a premium of 1,146.90 yuan/ton. The premium gap of over 244 yuan/ton suggests that mills are still willing to pay for the quality premium of imported cotton but are more price-sensitive toward Xinjiang cotton.
The Logic Behind the Price Correction
The decline in reserve cotton transaction prices appears to be a natural response to increased supply, but it essentially reflects weakening downstream demand support. Given already thin spinning margins, every 100 yuan/ton drop in cotton prices translates to approximately 150 yuan/ton in yarn cost changes, directly affecting mills' willingness to accept orders. When the reserve cotton price (3128B equivalent) hovers around 18,000 yuan/ton, mills retain some profit; once it falls below this psychological threshold, buyers shift to hand-to-mouth purchasing rather than advance stockpiling. This mindset change further pressures spot prices, creating a negative feedback loop.
Transmission Effects on Industrial Clusters
The price structure between Xinjiang and imported cotton is reshaping cotton procurement strategies across different industrial belts. Traditional spinning clusters in Shandong and Henan, which rely heavily on Xinjiang cotton for medium- and low-count yarns, may see the price correction as an opportunity to restock at lower levels. In contrast, enterprises in Jiangsu and Zhejiang, known for high-count and differentiated products, tend to lock in imported cotton resources to maintain product consistency. This divergence suggests that in subsequent reserve auctions, imported cotton premiums may remain firm while Xinjiang cotton prices face greater downward pressure.
Outlook and Operational Recommendations
Based on cumulative data, the average daily offering of reserve cotton is about 8,000 tons. If this pace continues, the remaining annual plan will be absorbed within two months. However, the real market variable lies not in reserve cotton itself but in the demand gap before the new cotton harvest and the recovery of downstream orders. If cotton prices continue to decline, delayed procurement by textile mills will compress inventories further, potentially leading to a sharp rebound once demand picks up. Therefore, a one-sided bearish stance is not advisable; instead, focus on band opportunities within the price range.