In mid-July 2026, an announcement regarding the sale of central reserve cotton sparked attention across the textile industry. Unlike previous years, this sale features more refined mechanisms in pricing and bidding eligibility—the floor price will be dynamically adjusted weekly, and only textile mills for self-use can participate, with resale strictly prohibited. The policy signals behind this move deserve careful interpretation by the entire supply chain.
Pricing Mechanism: 50% Weight for Domestic and International Indices, Deeper Marketization
Starting July 20, 2026, reserve cotton will be sold through open competitive bidding on the National Cotton Trading Market on each working day. The floor price is not fixed but adjusted weekly, calculated as: the arithmetic average of the domestic cotton spot price index from the previous week weighted at 50%, plus the arithmetic average of the international cotton spot price index from the previous week also weighted at 50%.
The domestic index is the average of the China Cotton Price Index (3128B variety) and the National Cotton Price Index (3128B variety). The international index uses the Cotlook A Index, converted after applying exchange rates, a 1% tariff, and a 9% VAT. The exchange rate follows customs valuation methods, using the benchmark rate from the third Wednesday of the previous month. Quality grade differentials follow the cotton quality differential table published by the China Cotton Association.
This mechanism means the reserve cotton floor price will directly track real-time spot market fluctuations rather than being administratively set. For mills, the weekly price anchor is more transparent and predictable, aiding cost calculation in procurement decisions. The 50-50 weighting also reflects policy adaptation to the linkage between domestic and international markets.
Bidding Threshold: Self-Use Only, Resale Leads to Disqualification
The most noteworthy clause is the strict eligibility requirement. The announcement clearly states: only textile mills can bid, and purchased reserve cotton is limited to the mill's own use—the bidder's unified social credit code or tax registration number must match that of the textile enterprise. Any resale will result in permanent disqualification from future reserve cotton trading.
This design directly targets past practices where non-mill entities or traders bought low-priced reserve cotton and resold it at a markup to mills, inflating end-user costs and distorting policy intent. The tightened self-use clause strengthens the 'precision drip' function of reserve cotton—ensuring every ton released goes directly into production, not circulation.
For small and medium-sized mills, this is both a benefit and a challenge. The benefit: reduced intermediary markups, theoretically allowing access to cotton closer to the floor price. The challenge: mills must prove their 'self-use' status and cannot adjust inventory through resale, demanding better capital turnover and order matching capabilities.
Industry Impact: Stabilizing Expectations, but Short-Term Volatility Risks Remain
From an industry perspective, the core goal of this reserve cotton sale is to 'meet the cotton demand of textile mills.' Currently, domestic and international cotton prices are volatile, downstream order recovery is uneven, and mills face profit compression between raw material costs and finished product prices. Timely reserve cotton releases help smooth periodic supply-demand imbalances, providing a 'predictable low-cost raw material supplement channel' for mills.
However, the weekly price adjustment mechanism means reserve cotton prices will move in tandem with the spot market. If domestic and international cotton prices continue to decline, reserve floor prices will also fall, potentially dragging down the overall price center. Conversely, if prices rebound, the cost advantage of reserve cotton will narrow. Thus, reserve cotton acts more as a 'follower' than a 'stabilizer'—it reflects the market but may not independently reverse trends.
Additionally, the self-use rule objectively reduces the volume of reserve cotton available in the open market. For traders and small enterprises relying on spot purchases, competition for non-reserve cotton channels may intensify.