Zhengzhou cotton futures recently rebounded with volatility, but the spot market response has been notably lukewarm. A few cotton enterprises proactively reduced their basis by 20 to 30 yuan per ton in an attempt to stimulate downstream buying, yet actual transaction volumes suggest this concession did not yield the expected uptick in sales. Mills and traders have instead become more cautious, creating a standoff where sellers lower prices but buyers remain on the sidelines.
This phenomenon highlights a divergence in price expectations along the supply chain. For spinning mills, although cotton prices have eased, the sustainability of end-use orders remains unclear, and finished product inventories have not been fully digested. As a result, mills are adopting a conservative procurement strategy of 'buying only for immediate needs and against confirmed orders,' rather than stockpiling on small price fluctuations.
Accelerated Warehouse Receipt Outflow and Structural Preferences
Notably, the outflow of Zhengzhou cotton warehouse receipts and advance reports is accelerating. From June 26 to July 2, daily reductions were 74, 73, 49, 55, and 62 sheets respectively, a clear acceleration from mid-June. This change indicates that more warehouse receipt resources are being taken up by downstream enterprises rather than remaining in the delivery cycle.
From a preference perspective, Southern Xinjiang cotton is the primary destination for this outflow. Current market quotes show that the basis for 2025/26 season Southern Xinjiang 3129B/3130B grade lint stored in inland warehouses is mostly between 1,520 and 1,810 yuan/ton (including warehouse receipts), while Northern Xinjiang cotton of the same grade carries a basis of 1,820 to 2,050 yuan/ton. The price difference of 200-400 yuan/ton gives Southern Xinjiang cotton a clear cost advantage, making it the focus of inquiries and purchases for inland mills.
This structural preference reflects mills' careful cost calculations in a low-margin environment. For procurement teams, a basis difference of 200-400 yuan per ton directly impacts production costs and final profitability, making low-basis resources the rational choice.
Tightening High-Quality Cotton Supply and Quota Anxiety
Another factor driving warehouse receipt uptake is mills' concern over supply tightness for high-quality cotton before the 2026/27 new crop arrives. Market consensus expects a period of relative shortage for grades like 'double 29/double 30/double 31.' Concurrently, expectations of a shortage in cotton import quotas for the second half of the year are also building.
For mills producing mid-to-high-end yarns, high-quality cotton is essential for product quality and export competitiveness. If domestic supply of premium cotton tightens and import quotas cannot fill the gap in time, mills could face a raw material crunch. Consequently, some mills are choosing to lock in a portion of high-quality cotton from current warehouse receipts to hedge against supply risks in the coming months.
Assessment of Basis Adjustment Space and Effectiveness
The 20-30 yuan/ton basis cut by a few cotton enterprises is seen in the industry as a tentative adjustment. Its limited impact on stimulating procurement is mainly because mills' purchasing decisions are driven more by their own order books and finished product inventory levels than by marginal price changes.
Only when cotton prices see a more significant decline, or when clear signs of recovery emerge in the downstream textile market, will mills' buying intentions be truly triggered. Therefore, if cotton enterprises want to accelerate destocking, they may need to consider more substantial basis reductions or adopt more flexible transaction methods such as 'fixed-price' competitive sales to meet rigid replenishment demand.