On July 14, China National Cotton Reserves Corporation released the 2026 reserve cotton sales rules, with the new round of releases starting July 20 on a daily basis, with total volume and end date undetermined. This move comes as domestic commercial stocks plummeted from a peak of 5.698 million tons at the start of the year to 2.8388 million tons, with Xinjiang stocks at only 1.6712 million tons, leaving a nearly two-month gap before the new crop arrives. The urgency of the supply gap is evident.
Pricing Mechanism and Market Expectations
The core highlight of this release is the dual optimization of pricing and access rules. The floor price uses a dual-anchor mechanism with 50% weight each from domestic and international spot indices, calculated at around 16,216 yuan/ton based on current spreads, offering a significant discount to market spot prices. Only physical textile enterprises are allowed to bid, with resale strictly prohibited and violators permanently disqualified. This effectively excludes traders and speculative capital, ensuring more rational bidding and prices likely close to the floor. Market expectations suggest the released cotton is mainly imported, with stable quality but limited high-grade content, failing to ease the tight supply of high-quality Xinjiang cotton.
Real Pressures on Supply and Demand
On the supply side, the reserve release aims to smooth the transition between old and new crops. But demand faces the constraint of the traditional off-season—mill operating rates in major regions have fallen to 73.1%, yarn inventories have piled up to 30 days, and new orders are insufficient, with mills only restocking for essential needs. After the new reserve cotton enters the market, strong buying support is unlikely in the short term, and the pressure on prices from increased supply will gradually accumulate. The latest USDA report shows global cotton production for 2026/2027 is expected at 25.53 million tons, down 3.8% year-on-year, shifting global supply-demand to a tight balance, providing underlying support for long-term prices. Coupled with the current high domestic-international price spread of 3,010 yuan/ton, a stronger international market will directly raise the reserve floor price, further limiting downside for domestic cotton.
Market Game and Industry Impact
The bearish news of the release has already been priced in. On July 15, the main Zhengzhou futures contract closed at 16,075 yuan/ton, down 45 yuan. In the short term, as the first round of bidding starts on July 20, mills with low raw material inventories and strong demand for regular yarn may drive some price premiums, providing temporary support. But as the release continues, increasing supply will pressure near-month contracts, with the 16,000 yuan/ton level repeatedly tested. In the medium to long term, the release can only supplement short-term supply, not change the core logic of global production cuts and scarce high-quality domestic cotton. As the release nears its end, market focus will shift to Xinjiang cotton growth, new crop opening prices, and the recovery of downstream orders during the peak season, with price support remaining solid.