On July 14, 2026, China Reserve Cotton Management Co., Ltd. announced a plan to sell part of the central reserve cotton starting July 20. This move is not ad hoc but a routine adjustment by national authorities to better meet the cotton demand of textile mills. Compared with previous years, this year's sales mechanism further strengthens the linkage between domestic and international markets, with more refined rules: daily auction volumes will be adjusted flexibly based on market conditions, and the weekly floor price will be dynamically calculated using a 50/50 weighting of domestic and international cotton spot price indices.
Background
The core of this reserve cotton sales mechanism lies in its market-linked pricing logic. The floor price is adjusted weekly using a clear formula: it equals 50% of the arithmetic average of the previous week's domestic cotton spot price index plus 50% of the international cotton spot price index. The domestic index is the average of the China Cotton Price Index and the National Cotton Price Index (both for 3128B grade). The international index uses the Cotlook A Index, converted to RMB after applying a 1% tariff and 9% VAT.
This pricing method means the reserve cotton floor price will closely track global cotton price fluctuations. For textile mills, procurement costs will no longer be determined solely by the domestic market but will be influenced by international supply-demand dynamics, exchange rate movements, and tariff policies. The exchange rate, calculated using the benchmark rate on the third Wednesday of the previous month (following customs valuation methods), adds transparency and predictability.
Industry Impact
From an industrial cluster perspective, this sales mechanism will directly impact procurement strategies in major cotton textile hubs like Shengze, Keqiao, and Nantong. The flexible daily auction volumes require enterprises to establish more agile raw material inventory management systems. The traditional model of fixed-batch procurement may face challenges—companies must track daily auction volumes and price trends in real time to stay competitive in bidding.
More critically, the sales are strictly limited to textile mills for self-use only. Non-textile enterprises that violate this rule will have their bids invalidated and lose future participation rights. This rule effectively cuts off middlemen from hoarding for profit, ensuring reserve cotton flows directly to end producers. For small and medium-sized mills, this is both an opportunity—reducing intermediate markups—and a pressure—requiring strict compliance and self-use commitment.