The reserve cotton release is now set, introducing a key variable that is reshaping the short-term supply-demand balance. On July 14, China National Cotton Reserves Corporation released the sales rules, with the first batch hitting the market on July 20, listed daily with no fixed total volume. What truly matters for the industry is not the release itself, but how it interacts with multiple fundamental signals emerging simultaneously.
Short-Term Game: Supply Easing vs. Weak Demand
The textile industry is currently in its traditional off-season, with downstream new orders insufficient. Operating rates in major spinning regions have fallen to 73.1%, and yarn inventories have accumulated to 30 days. Mills are only restocking for immediate needs, with little appetite for active hoarding. Against this backdrop, the incremental supply from the reserve release is unlikely to generate strong buying support in the short term.
Looking at inventory structure, domestic commercial cotton stocks have dropped from a peak of 5.6981 million tons at the beginning of the year to 2.8388 million tons, a decline of more than half. Xinjiang产区 stocks are only 1.6712 million tons, and high-grade spot resources are gradually tightening. The reserve release can smooth the transition gap between old and new crops, but the proportion of high-grade cotton is limited, and the tight supply of high-quality Xinjiang cotton needed for high-count yarns is unlikely to ease soon.
On pricing, this release adopts a dual-anchor mechanism weighting domestic and international cotton spot indices equally at 50% each, with the floor price adjusted weekly. Based on recent domestic-international price spreads, the floor price is approximately 16,216 yuan/ton, offering a clear price advantage over current market spots, making it attractive for mills with immediate needs. Strict participation thresholds apply: only实体 textile enterprises can bid for self-use, with resale prohibited, effectively blocking traders and speculative capital from entering the market.
Global Production Cut Expectations Build a Medium-to-Long-Term Floor
Supply-side variables are not limited to the reserve release. The latest USDA supply-demand report shows global cotton production for 2026/2027 is estimated at 25.53 million tons, down 3.8% year-on-year, pushing the global balance toward a tight equilibrium. Combined with the current high domestic-international price spread of 3,010 yuan/ton, international price fluctuations will directly transmit to domestic reserve floor prices. A stronger external market will raise the cost of the release, further compressing the downside for domestic prices.
Domestically, Xinjiang cotton fields are in the critical boll development stage. Persistent high temperatures since July are stressing cotton growth, fueling market expectations of a new-crop production decline. 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 domestic scarcity of high-quality cotton.
Operational Rhythm Amid Long-Short Crosscurrents
On the futures front, the bearish impact of the reserve release has already been priced in. On July 15, the main Zhengzhou cotton contract closed at 16,075 yuan/ton, down 45 yuan for the day. In the short term, when the first bidding round opens on July 20, mills generally have low raw material inventories. Conventional yarn producers have strong restocking demand and high bidding enthusiasm, so early transactions may see some premiums, providing a temporary floor for spot and futures prices.
However, as the release progresses, daily supply accumulation will gradually exert pressure. The supply increase will weigh on near-month contracts, and price upside is clearly constrained by policy. The 16,000 yuan/ton level will face repeated tests. As the release enters its later stages, market focus will shift to Xinjiang cotton growth, new-crop opening prices, and the recovery of downstream orders during the 'Golden September and Silver October' peak season.
For Buyers - Conventional yarn mills should focus on the first bidding window, using the price advantage of reserve cotton to replenish stocks as needed and smooth raw material costs. - Mills specializing in high-count, high-end yarns should lock in high-quality Xinjiang spot cotton as needed to hedge against the shortage of high-grade cotton.
For Foreign Trade Enterprises - Avoid large-scale hoarding in the short term; follow orders flexibly for procurement and sales, and continuously track daily release volumes, transaction rates, and premium levels. - In the medium to long term, consider buying high-quality Xinjiang cotton on dips to bet on price opportunities from the new-crop production decline.
Key monitoring points going forward include: daily reserve listing volumes and transaction heat, weather changes in Xinjiang, downstream operating rates and order recovery, and the domestic-international price spread and US cotton trends. Short-term weak volatility, medium-to-long-term solid floor—this is the most critical rhythm to grasp during this release cycle.