Persistent supply increment expectations continue to pressure cotton prices, but global production cuts and scarcity of high-quality cotton provide fundamental support—the main contract of Zheng Cotton is facing a critical tug-of-war at the 16,000 yuan/ton mark.
Policy Landing: Dual-Index Pricing Locks Floor, Speculative Funds Shut Out
On July 14, CNCRC released the implementation rules for the 2026 central reserve cotton sales. The new round of release is set to start on July 20, with daily listings, unspecified total volume and end date, and flexible adjustment based on market conditions. The pricing adopts a dual-anchor mechanism with equal weighting of domestic and international cotton spot indices, 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 advantage over current spot prices and attracting sufficient demand from yarn spinners.
Eligibility criteria have been tightened: only physical textile enterprises can participate in bidding, and the acquired cotton must be for self-use, with resale strictly prohibited. Violators will have their reserve cotton trading qualifications permanently revoked. This effectively excludes traders and speculative funds, leading to more rational bidding and prices likely close to the floor. The market generally expects the released cotton to be mainly imported, with stable quality but limited high-grade content, so the tight supply of high-quality Xinjiang cotton is unlikely to ease soon.
Supply-Demand Mismatch: Inventories More Than Halved, Weak Off-Season Demand Weighs on Purchases
The core reason for the release is to fill the supply gap between old and new cotton seasons. Domestic commercial inventories have fallen from a peak of 5.6981 million tons at the start of the year to 2.8388 million tons, a drop of more than half. Xinjiang stocks are only 1.6712 million tons, with high-grade spot resources tightening. With nearly two months until the new cotton is concentrated on the market, there is a risk of staged supply tightness, and the reserve release helps smooth the transition and avoid sharp price fluctuations.
However, downstream demand support is weak. The industry is in the traditional off-season, with mill operating rates in major regions falling to 73.1% and yarn inventories piling up to 30 days. New orders are insufficient, and mills are only restocking for urgent needs, with low willingness to build inventory. After the new reserve cotton enters the market, it will be difficult for strong buying to absorb the incremental supply in the short term, creating a supply-demand mismatch.
Global Production Cut Tone Unchanged, Medium-Term Floor Solid
From a global perspective, medium- to long-term cotton prices have solid support. Xinjiang cotton fields are in a critical boll development stage, with sustained high temperatures since July stressing cotton growth and fueling expectations of a new-season production cut. 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, shifting the global supply-demand balance toward a tight equilibrium and providing underlying support for forward prices.
The domestic-international cotton price spread remains high at 3,010 yuan/ton. Under the dual-weight pricing mechanism, international price fluctuations will directly transmit to the reserve cotton floor price. A stronger external market will simultaneously raise the release cost, further limiting the downside for domestic prices.
Market Game: Short-Term Pressure, Long-Term Floor
The bearish impact of the release has already been priced in, with the Zheng Cotton main contract closing at 16,075 yuan/ton on July 15, down 45 yuan. In the short term, at the start of the first bidding round, mills generally have low raw material inventories, and conventional yarn producers have strong restocking demand, leading to high participation. Initial transactions may see some premiums, providing a temporary floor for spot and futures prices. Combined with the high-temperature production cut expectations in Xinjiang, a deep decline is unlikely.
However, as the release progresses, the cumulative supply from daily listings will increase, and the supply pressure will gradually weigh on near-month contracts, limiting upward price movement. The 16,000 yuan/ton level will be tested repeatedly. From a medium- to long-term perspective, the release can only temporarily supplement short-term circulation supply and cannot change the core logic of global production cuts and domestic high-quality cotton scarcity. As the release nears its end, market focus will shift to Xinjiang cotton growth, new season opening prices, and the recovery of downstream peak season orders, with the price floor remaining solid.