Domestic cotton commercial inventories have halved from a peak of 5.6981 million tons at the beginning of the year to 2.8388 million tons, with Xinjiang production areas holding only 1.6712 million tons. With nearly two months until the new crop arrives, the reserve cotton release becomes a crucial mechanism to fill the supply gap. On July 14, CNCRC released sales details, scheduling daily listings from July 20, with total volume and end date unspecified, adjusted flexibly based on market conditions.
Policy Design: Balancing Supply and Price Stability
The trading rules emphasize marketization and risk control. Pricing uses a dual-anchor mechanism with equal weighting of domestic and international spot indices, adjusted weekly, currently around 16,216 yuan/ton, significantly below spot prices, attractive to mills. Strict participation thresholds limit buyers to physical textile enterprises, with purchased cotton for self-use only, resale prohibited, and violators permanently disqualified. This directly blocks traders and speculative capital, expecting rational bidding with prices near the floor. Market consensus expects the release to consist mainly of imported cotton with stable quality but limited high-grade content, leaving the tight supply of high-quality Xinjiang cotton unchanged in the short term.
Industry Transmission: Supply Increase Meets Weak Demand
The core purpose of the reserve release is to smooth the transition period. However, downstream demand support is weak: the industry is in a traditional off-season, with mill operating rates falling to 73.1% and yarn inventories piling up to 30 days, with mills only replenishing for immediate needs. The influx of new reserve cotton is unlikely to generate strong buying power in the short term. Nevertheless, global fundamentals support medium- to long-term cotton prices. The latest USDA report shows 2026/27 global cotton production at 25.53 million tons, down 3.8% year-on-year, shifting supply-demand to a tight balance. Combined with a current domestic-international price spread of 3,010 yuan/ton, international price fluctuations directly transmit to the reserve floor price, with overseas strength raising release costs and compressing domestic downside.
Market Game: Short-Term Pressure, Solid Floor
The bearish impact of the release has been partially priced in, with Zhengzhou cotton futures closing at 16,075 yuan/ton on July 15. In the initial auction round starting July 20, mills with low raw material inventories and strong replenishment demand for regular yarn may bid with some premium, providing a temporary floor. However, as the release progresses, cumulative daily supply will exert pressure on near-term contracts, with the 16,000 yuan/ton level repeatedly tested. In the medium to long term, the release only supplements short-term circulation and cannot change the core logic of global production cuts and domestic high-quality cotton scarcity. Once the release ends, market focus will shift to Xinjiang cotton growth, new crop opening prices, and the recovery of peak season orders in September-October.