A 99.92% sales ratio since the reserve cotton auctions began on July 20 looks like unbridled demand. Yet the average transaction price has been sliding, settling at 17,316.36 yuan per tonne in the latest week, down 203.42 yuan week on week. Volume is holding up while prices soften — a divergence that suggests buyers are still active but increasingly unwilling to chase highs. The anchor for cotton pricing is shifting from sentiment back to industrial fundamentals.
What the Auction Structure Reveals
Data from China Reserve Cotton Management Co. show that in the week of September 7-11, a total of 40,036.3334 tonnes were offered, with 39,777.0584 tonnes sold, a 99.35% sales ratio. The average price stood at 17,316.36 yuan per tonne, equivalent to 17,953.61 yuan per tonne for the standard grade 3128, with an average premium of 650.61 yuan. The highest transaction reached 18,330 yuan per tonne, the lowest 16,550 yuan.
The narrowing premium is the week's most telling detail. It means mills are no longer willing to pay extra just to secure supply. Breaking it down by origin, Xinjiang cotton averaged 17,111.82 yuan per tonne, or 17,931.28 yuan for grade 3128, with a premium of 628.28 yuan. Imported cotton averaged 17,317.48 yuan per tonne, or 17,953.73 yuan for grade 3128, with a premium of 650.73 yuan. The spread between the two is just over 200 yuan, indicating that mills have no strong preference at the bidding stage — order structure and quality fit are the real drivers.
Looking at the cumulative picture from July 20 to September 11, 320,754.3527 tonnes were offered and 320,495.0777 tonnes sold, a 99.92% sales ratio. The average price was 17,302.42 yuan per tonne, or 17,949.92 yuan for grade 3128, with an average premium of 1,276.25 yuan. The highest price reached 19,370 yuan, the lowest 16,060 yuan. The cumulative premium is roughly double the single-week figure, confirming that the buying frenzy of the early auction rounds has cooled markedly.
Why the Futures-Physical Divergence Matters
Zhengzhou cotton futures have drifted lower while imported cotton has traded sideways, creating a clear divergence between futures and physical prices. This is the most critical turning point in the current cycle. Futures reflect expectations around new-crop arrival, import quotas and macro sentiment. Physical prices reflect actual mill operating rates and order books. When the two diverge, it usually means the market is no longer paying for narratives and is instead waiting for verifiable supply and demand data.
For ginners upstream, the sustained high sales ratio means the government is injecting low-priced resources into the market, capping the upside for new-crop opening prices. For spinners downstream, the predictability of raw material costs actually improves. Buying on demand without stockpiling has become the rational choice for most mills. Every link in the chain is reducing inventory exposure, and this collective behaviour further weakens the upward elasticity of prices.
It is worth noting that a near-100% sales ratio does not equal robust demand. It mostly indicates an arbitrage gap between the auction reserve price and prevailing spot prices, which traders and mills are locking in. Once new cotton arrives in volume and spot prices move lower, the relative advantage of reserve cotton narrows, and whether the sales ratio can hold at current levels is uncertain.
Operating Rhythm in the Verification Phase
The market has entered a verification phase centred on new-crop supply and downstream demand. Mills are currently bidding in batches according to order quality requirements, keeping raw material inventories between two weeks and one month to avoid being caught holding positions when price direction is unclear. This approach is prudent for buyers, but it also means that if orders pick up, restocking demand could be released in a concentrated burst.
From a regional perspective, yarn mills in Jiangsu, Zhejiang, Shandong and Henan are more focused on fibre length and micronaire matching for Xinjiang cotton, while export-oriented factories maintain interest in the stable supply of imported cotton. This divergence in procurement preferences across industrial belts makes it unlikely that the average auction price will move sharply in one direction; it is more likely to probe within a range.