On July 20, a new round of reserve cotton release will officially begin, with the policy landing just six days after the China National Cotton Reserve Corporation published the sales details. The core aim is to fill the temporary supply gap during the transition between old and new cotton seasons, rather than to suppress prices. Domestic commercial stocks have dropped from a peak of 5.6981 million tons at the start of the year to 2.8388 million tons, a decline of over half. Stocks in Xinjiang stand at only 1.6712 million tons, with high-quality resources tightening.
Limited Supply Upside, Demand Provides Support
Unlike previous years, the daily release volume for this round will be flexibly adjusted based on market supply and demand, with the total volume and end date undetermined, offering significantly greater policy flexibility. The pricing mechanism uses a dual-anchor model, equally weighting domestic and international spot indices, with the floor price adjusted weekly, currently around 16,216 yuan per ton. This creates a clear price advantage over the spot market, directly appealing to spinning mills.
Entry barriers have been tightened: only physical textile enterprises can participate in bidding, resale is strictly prohibited, and violators face permanent disqualification. This effectively blocks traders and speculative capital, leading to more rational bidding. Market expectations indicate that the released cotton will mainly be imported, with stable quality but limited high-grade content, unable to meet high-count yarn production needs. The tight supply of high-quality Xinjiang cotton is unlikely to ease in the short term.
Weak Downstream Demand, But Production Cut Expectations Support Far-Term Prices
The downstream textile sector is in its traditional off-season, with insufficient new orders. Operating rates in major spinning regions have fallen to 73.1%, and yarn inventories have built up to 30 days. Mills are purchasing only for immediate needs, lacking enthusiasm for stockpiling. This means that after the reserve cotton enters the market, it will be difficult to generate strong buying interest to absorb the incremental supply in the short term, putting pressure on near-term contract prices.
However, the global fundamentals do not support a deep decline in cotton prices. The latest USDA supply-demand report projects global cotton production for 2026/2027 at 25.53 million tons, down 3.8% year-on-year, shifting the supply-demand balance toward a tight equilibrium. Meanwhile, Xinjiang cotton fields are in the critical flowering and boll-setting stage, with persistent high temperatures since July intensifying production cut expectations. The domestic-international cotton price spread remains high at 3,010 yuan per ton, meaning that strength in international prices will directly raise the cost of reserve cotton releases, limiting the downside for domestic prices.
Market Game: Repeated Tests at the 16,000 Yuan Mark
On July 15, the main Zhengzhou cotton futures contract closed at 16,075 yuan per ton, down 45 yuan, with the negative impact of the release already priced in. In the short term, initial bidding rounds will see strong participation from mills with low raw material inventories, providing temporary support for spot and futures prices. Combined with the high-temperature production cut expectations, a deep decline is unlikely. However, as the release progresses, the cumulative supply pressure will build, capping upside potential. The 16,000 yuan mark will face repeated tests.
From a medium-to-long-term perspective, the reserve release can only temporarily supplement short-term circulating supply; it cannot change the core logic of global production cuts and scarce high-quality Xinjiang cotton. Once the release nears its end, market focus will shift to Xinjiang cotton growth, new season opening prices, and downstream demand recovery during the golden September and silver October peak season. The price floor remains solid.
Market Watch and Operational Advice
Key observations going forward focus on four areas: daily release volume, transaction heat, and premium levels, which directly reflect real demand from mills; temperature and precipitation changes in Xinjiang cotton regions, for ongoing assessment of crop conditions and potential production cuts; downstream fabric mill operating rates, yarn mill inventories, and domestic and export order changes, to track the pace of seasonal demand recovery; and the domestic-international price spread and US cotton trends, to gauge the international market's impact on domestic reserve release floor prices.