Reserve cotton sales loom, ICE cotton faces short-term pressure but mid-term demand resilience remains
ICE cotton futures for December delivery fell 0.79% to 80.87 cents per pound on July 14, breaking a week-long rally. The decline was driven by concerns over near-term demand prospects and the official announcement of China's state reserve cotton sales, which were largely anticipated but still triggered profit-taking.
Reserve sales expectations weigh on sentiment
China National Cotton Reserves Corporation announced that it will sell part of its central reserve cotton on each working day starting July 20. While the market had broadly expected this move, the formal announcement prompted some funds to cash out after the previous week's gains. StoneX analyst Valentin Olah noted that the market's weakness was primarily a reaction to this news.
Historically, reserve sales are launched before the new crop season to ease mill supply shortages. However, this year's early timing coincides with the USDA's July supply-demand report, which raised 2026/27 US cotton production estimates by 400,000 bales to 13.7 million bales, and global supply by 300,000 bales. The dual supply-side signals have created short-term headwinds for ICE cotton.
Underlying support remains intact
Despite short-term bearish factors, the global cotton balance sheet is not uniformly loose. Brazil's Conab reported that 2025/26 cotton production is estimated at 4.0598 million tons, down 0.5% year-on-year, with planted area falling 3.2% to 2.0186 million hectares. As the world's third-largest producer, Brazil's output contraction partially offsets US production gains.
External macro conditions also provide support. The US dollar index fell on July 14, while oil prices rose about 2% due to renewed US naval blockade against Iran, raising supply risks through the Strait of Hormuz. A weaker dollar boosts cotton export competitiveness, while higher oil prices increase costs for synthetic fiber substitutes, indirectly favoring cotton demand.
Implications for Chinese textile mills
For Chinese mills, the reserve sales mean wider raw material procurement channels and a clearer price ceiling. Early bidding prices are expected to be rational, allowing mills to replenish low-cost inventories. However, daily sales volumes will be adjusted dynamically based on market conditions, so mills should manage purchasing pace carefully.
ICE cotton has strong support near 80 cents/lb, given Brazil's output cut and exchange stocks falling to 121,285 bales (from 127,127 a day earlier). Once the initial selling pressure from reserve sales is absorbed, the market may refocus on the new crop supply-demand gap, potentially leading to a price rebound.