Domestic cotton commercial inventories have plummeted from a peak of 5.6981 million tons at the beginning of the year to 2.8388 million tons, a drop of over 50%. In the Xinjiang producing region, only 1.6712 million tons remain, with high-grade spot resources becoming increasingly scarce. With about two months until the new cotton harvest enters the market, the risk of a temporary supply shortage has clearly emerged.
Event Background
On July 14, CNCRC released the implementation rules for the 2026 central reserve cotton sales. The new round of release is scheduled to start on July 20, with daily listings on each legal working day. Unlike previous years, the total volume and end date are not predetermined, and daily release volumes will be flexibly adjusted based on market supply and demand, highlighting increased policy flexibility.
The pricing mechanism adopts a dual-anchor model, with domestic and international cotton spot indices each accounting for 50% weight. The base price is dynamically adjusted weekly. Based on recent domestic and international cotton price spreads, the base price for this round is approximately 16,216 yuan/ton, offering a clear price advantage over current spot market prices, making it attractive for yarn mills with rigid demand.
Access rules have been further tightened: only physical textile enterprises are allowed to participate in bidding, and the purchased reserve cotton is limited to self-use, with resale strictly prohibited. Violators will permanently lose their reserve cotton trading qualifications. This directly excludes traders and speculative funds, making market competition more rational and transaction prices likely to stay close to the base price. Market expectations suggest the released cotton will mainly be imported, with stable overall quality but limited high-grade content, failing to meet the demand for high-count yarn production. The tight supply of high-quality Xinjiang cotton is unlikely to ease in the short term.
Industry Impact
The primary goal of launching this reserve cotton release is to fill the supply gap during the transition between old and new cotton seasons. Currently, the downstream textile industry has entered the traditional off-season, with insufficient new orders. The operating rate in major spinning regions has fallen to 73.1%, and yarn inventories have accumulated to 30 days. Enterprises are only replenishing for immediate needs, with weak willingness to stockpile. The influx of new reserve cotton is unlikely to generate strong buying support in the short term.
In the short term, at the start of the first bidding round on July 20, spinning mills generally have low raw material inventories. Conventional yarn producers have strong replenishment demand and high bidding enthusiasm, potentially leading to some premium in early transactions. This rigid demand can temporarily support spot and futures prices. However, as the release continues and daily volumes accumulate, the impact of increased supply will gradually unfold. The supply pressure from growing volumes will continue to pressure near-month contracts, with policy clearly limiting upside potential for cotton prices. The 16,000 yuan/ton mark will face repeated tests.
From a medium- to long-term perspective, the reserve release can only temporarily supplement short-term circulating supply and cannot change the core logic of global production cuts and domestic high-quality cotton scarcity. The latest USDA supply-demand report shows global cotton production for 2026/2027 is projected at 25.53 million tons, down 3.8% year-on-year, shifting the global supply-demand balance toward tightness. With the domestic-international cotton price spread remaining at a high 3,010 yuan/ton, the dual-anchor pricing mechanism means international price fluctuations will directly affect the domestic reserve cotton base price. A stronger international market will raise the cost of the reserve release, further limiting downside potential for domestic prices.
Xinjiang cotton fields are in the critical boll development stage, with sustained high temperatures since July putting pressure on cotton growth, fueling market expectations for a production cut in the new season. As the release enters its final phase, market focus will shift to Xinjiang cotton growth, new cotton opening prices, and the recovery of downstream demand during the peak "Golden September and Silver October" season. The price floor remains solid.