On July 20, the new round of reserve cotton release begins, just as Zhengzhou cotton's main contract hovers at 16,075 yuan per ton, making the 16,000-yuan threshold a critical battleground.
This price level is no surprise. According to the sales rules issued by CNCRC on July 14, the release adopts a dual-anchor pricing mechanism, equally weighting domestic and international cotton spot indices. The floor price, adjusted weekly based on recent domestic-foreign spreads, is estimated at 16,216 yuan per ton—offering a clear advantage over current spot prices and attracting spinning mills.
Policy Design: Balancing Supply, Price, and Speculation
More notable are the tightened transaction rules. Only physical textile enterprises can participate, and purchased cotton must be self-used, with resale strictly prohibited. Violators face permanent disqualification from reserve cotton trading. This effectively blocks traders and speculative capital, meaning bidding will be more rational, with transaction prices likely near the floor rather than the high premiums seen in previous years.
Supply-wise, the market expects the released cotton to be mainly imported, stable in quality but limited in high-grade grades. For high-count yarn producers, the tight supply of premium Xinjiang cotton will not ease soon, requiring alternative sourcing.
Supply-Demand Imbalance: Low Stocks vs. Weak Demand
The core logic behind this release is to bridge the supply gap between old and new crops. Domestic commercial cotton stocks have fallen from a peak of 5.70 million tons in early 2026 to 2.84 million tons, a drop of over 50%. Xinjiang stocks alone are down to 1.67 million tons, with high-grade supplies tightening. With nearly two months until the new crop enters the market, reserve cotton is a conventional tool to smooth this transition.
However, downstream demand remains weak. The industry is in its traditional slack season; new orders are insufficient, mill operating rates have fallen to 73.1%, and yarn inventories have built up to 30 days. Mills are only restocking for immediate needs, with little appetite for building inventories. The fresh supply from reserves will struggle to find strong buying support in the short term, capping any price upside.
Global Production Concerns: A Medium-Term Floor
Despite near-term pressure, the medium-term price floor is not fragile. Xinjiang cotton fields are in the critical boll-forming stage, and persistent heatwaves since July have intensified expectations of a lower new crop. The latest USDA report projects 2026/27 global cotton production at 25.53 million tons, down 3.8% year-on-year, pushing global supply-demand towards a balanced-tight scenario.
Meanwhile, the domestic-foreign spread remains high at 3,010 yuan per ton. Under the dual-anchor mechanism, international price fluctuations directly affect the reserve's floor price—a stronger offshore market would lift release costs, further limiting domestic downside. This means the release is a temporary bearish factor but cannot change the core logic of global production cuts and scarce premium Xinjiang cotton.
Market Dynamics: Short-Term Volatility, Long-Term Support
On the futures front, the bearish news from the release has already been priced in. On July 15, the main Zhengzhou contract closed at 16,075 yuan per ton, down only 45 yuan. In the initial rounds starting July 20, mills with low raw material inventories and strong replenishment needs for regular yarns will bid actively, potentially with some premiums, providing a temporary floor for spot and futures prices.
But as the release progresses, the cumulative supply will exert increasing pressure on near-term contracts. The 16,000-yuan level will be tested repeatedly. Over the medium term, market focus will shift to Xinjiang crop conditions, new-crop opening prices, and the recovery of downstream orders during the 'Golden September and Silver October' peak season. The price floor remains solid.