The reserve cotton release policy has landed, with bulls and bears clashing around the 16,000 yuan/ton level. On July 14, China National Cotton Reserves Corporation issued the 2026 sales implementation rules, confirming the new round of releases begins July 20, with daily listings but no fixed total volume or end date—supply will adjust flexibly based on market conditions. This move directly addresses the ongoing depletion of domestic commercial cotton inventories, which have fallen from a peak of 5.6981 million tons at the start of the year to 2.8388 million tons, with Xinjiang stocks down to 1.6712 million tons.
Policy Design: Stabilizing Prices, Curbing Speculation
This release features notable rule changes. Pricing uses a dual-anchor mechanism equally weighting domestic and international spot indices, adjusted weekly. Based on recent spreads, the floor price is around 16,216 yuan/ton, below market spot levels, attracting spinning mills. Crucially, only physical textile enterprises can bid, and purchased cotton must be self-used—resale is banned, with violators permanently disqualified. This blocks traders and speculative capital, making bidding more rational and transaction prices likely close to the floor. Market sources expect the released cotton to be mainly imported, with stable quality but limited high-grade content, meaning the tight supply of premium Xinjiang cotton will persist.
Industry Impact: Filling Gaps, but Weak Demand
The core purpose of the release is to smooth supply gaps between old and new crop seasons. With nearly two months until the new harvest, high-quality spot supplies are tightening, and the release can prevent sharp price swings. However, downstream textiles are in a traditional low season, with insufficient orders. Mill operating rates have fallen to 73.1% in major regions, and yarn inventories have built up to 30 days. Mills are only restocking for immediate needs, with little appetite for hoarding. Once fresh reserve cotton enters the market, it's unlikely to see strong buying support in the short term, meaning initial transactions may be limited to essential needs with modest premiums.
Global Fundamentals: Production Cuts Offer Long-Term Support
Looking globally, medium-to-long-term cotton prices have solid support. Xinjiang cotton is in a critical boll-setting phase, and sustained high temperatures since July are pressuring growth, fueling 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, shifting global supply-demand toward a tight balance. Combined with a domestic-international spread of 3,010 yuan/ton, the dual-anchor pricing mechanism means international price moves will directly affect reserve floor prices. A stronger ICE cotton market would lift release costs, limiting downside for domestic prices.
Market Dynamics: Short-Term Pressure, Solid Long-Term Floor
The bearish impact of the release was already priced in, with Zhengzhou cotton futures weakening ahead of the announcement. On July 15, the main contract closed at 16,075 yuan/ton, down 45 yuan. In the near term, when bidding starts July 20, mills with low inventories—especially those producing standard yarns—will be active bidders, potentially pushing up initial transaction prices. This essential demand could provide a temporary floor. But as the release progresses, accumulating supply will pressure near-month contracts, capping upside. The 16,000 yuan/ton level will be repeatedly tested. Over the medium term, the release only temporarily supplements spot supply; it cannot change the core logic of global production cuts and scarce high-quality Xinjiang cotton. Once the release winds down, market focus will shift to Xinjiang crop conditions, opening prices for new cotton, and the recovery of downstream orders during the peak autumn season. Price support remains solid.