Zheng cotton futures have rebounded with volatility, but the spot market reaction has been tepid. Since late June, spot trading has thinned, with downstream mills adopting a wait-and-see attitude. In response, some cotton trading enterprises have lowered sales basis by 20-30 yuan/ton. However, this price cut has failed to stimulate transactions, and both mills and intermediaries have further slowed their procurement pace.
Basis Adjustment and Regional Divergence
A notable feature of the current market is the clear divergence in basis between northern and southern Xinjiang cotton. As of early July, for 2025/26 southern Xinjiang local cotton grade 3129B/3130B (against CF2609 contract) stored in inland warehouses in Henan, Shandong, and Jiangsu, the basis mostly ranged from 1,520 to 1,810 yuan/ton (including warehouse receipts). In contrast, northern Xinjiang cotton of the same grade had a basis of 1,820 to 2,050 yuan/ton, a premium of 200-400 yuan/ton over southern resources.
This price gap has directly reshaped the procurement map for inland cotton mills. With northern Xinjiang resources being scarce in listings and carrying higher basis, inquiries and purchases have clearly shifted toward southern and eastern Xinjiang cotton. Low-basis resources from areas like Kashgar, Kizilsu, Hotan in southern Xinjiang, and Hami in eastern Xinjiang have become market focal points. Large and medium-sized cotton enterprises have also launched 'one-price' competitive trading sessions, which, due to price transparency and transaction convenience, have become an important channel for mills' just-in-time replenishment.
Accelerated Warehouse Receipt Outflows and Their Implications
In contrast to the sluggish spot market, the outflow speed of Zheng cotton warehouse receipts and valid warrants accelerated significantly from late June to early July. Statistics show that from June 26 to July 2, daily reductions were 74, 73, 49, 55, and 62 lots, marking a notable acceleration compared to the mid-June daily average.
This accelerated outflow is driven by multiple factors. First, the persistently high spot basis for Xinjiang cotton stored in Xinjiang warehouses makes warehouse receipt resources relatively attractive in price. Second, market expectations are growing for a tight supply of high-quality cotton (such as 'double 29, double 30, double 31' with high grade, high micronaire, and high breaking strength) before the 2026/27 new crop arrives. Third, concerns over a shortage of cotton import quotas in the second half of the year have prompted some textile mills and intermediaries to actively take warehouse receipts to secure supply.
This round of warehouse receipt digestion is essentially an early reaction to the anticipated structural shortage of high-quality cotton in the coming months. For mills, accepting warehouse receipts now is not just a cost decision but also a strategic move for supply chain security.
Industry Impact and Market Outlook
The core contradiction in the current market is the disconnect between the futures rebound and the spot market's inability to follow suit. Weak downstream consumption support has kept mills cautious about raw material procurement. Despite the basis reduction, mills prefer to digest existing inventories or wait for lower prices rather than chasing higher prices to replenish.
From a regional perspective, the price gap between southern and northern Xinjiang cotton is unlikely to narrow in the short term. Northern Xinjiang cotton, known for its stable quality and low trash content (within 2.6%), commands a basis premium but also suffers from lower liquidity. Southern Xinjiang cotton, with its price advantage, has gained more inquiry opportunities in the current wait-and-see market.
Looking ahead, the sustainability of warehouse receipt outflows will be a key monitoring indicator. If digestion accelerates further, it could alleviate some supply pressure for high-quality cotton but may also push spot basis higher. Conversely, if downstream orders remain sluggish, outflows may slow again, prolonging the market's bargaining phase.