On July 20, a new round of reserve cotton release will officially commence. The China National Cotton Reserves Corporation issued sales rules on July 14, stipulating daily listings on each statutory working day without setting a total volume or end date, allowing flexible adjustments based on market conditions. This indicates the policy retains sufficient regulatory flexibility to address supply-demand fluctuations during the transition between old and new cotton seasons.
Current domestic commercial cotton stocks have fallen to 2.8388 million tons from a peak of 5.6981 million tons at the start of the year, a decline of over 50%. Xinjiang's stocks are only 1.6712 million tons, with high-grade spot resources clearly tightening. With nearly two months until the new cotton harvest enters the market, there is an inherent risk of periodic supply shortages. The core purpose of the reserve release is to smooth this transition gap and prevent sharp price volatility.
Price Game Under Weak Supply and Demand
However, the supply increase from the release is not without constraints. 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, with little appetite for active stockpiling. After the new reserve cotton enters the market, it will be difficult to generate strong buying demand to absorb the incremental supply in the short term, limiting upward price potential.
The auction rules employ a dual-anchor mechanism, weighting domestic and international cotton spot indices equally at 50% each, with the base price adjusted weekly. Based on recent domestic-international price spreads, the base price is approximately 16,216 yuan/ton, offering a clear advantage over current spot prices. Only physical textile enterprises are allowed to participate in bidding, and purchased cotton is restricted to self-use, with resale prohibited. This effectively excludes traders and speculative capital, fostering a more rational bidding environment, with transaction prices likely to hover near the base price.
The market generally expects the released cotton to be primarily imported, with stable overall quality but limited high-grade content, failing to meet demand for high-count yarns. This means the tight supply of high-quality Xinjiang cotton will not ease in the short term, keeping its prices relatively firm.
Medium- to Long-Term Support Factors Remain
Despite short-term pressure, medium- to long-term support for cotton prices is solid. The global cotton supply-demand balance is tightening. The latest USDA report projects 2026/27 global production at 25.53 million tons, down 3.8% year-on-year. Xinjiang cotton fields are in the critical boll development stage, with persistent high temperatures since July stressing growth, fueling expectations of a new-season production decline.
The domestic-international cotton price spread remains elevated at 3,010 yuan/ton. Under the dual-anchor mechanism, international price fluctuations directly transmit to the reserve base price. A stronger global market would simultaneously raise the cost of reserve releases, further limiting downside room for domestic prices. This means that even if short-term supply pressure emerges, unless international prices collapse, domestic price declines will be constrained.
Market Dynamics and Operational Rhythm
The negative impact of the reserve release has already been priced in. On July 15, the main Zhengzhou cotton futures contract closed at 16,075 yuan/ton, down a marginal 45 yuan, indicating market anticipation. In the initial rounds of bidding starting July 20, mills with low raw material inventories will show strong participation, likely pushing up transaction prices slightly, providing a temporary floor for spot and futures prices. However, as the release progresses, accumulated supply will pressure near-month contracts, and the 16,000 yuan/ton level will be repeatedly tested.
From a medium- to long-term perspective, the reserve release only temporarily supplements short-term circulation supply and cannot alter the core logic of global production cuts and high-quality Xinjiang cotton scarcity. As the release winds down, market focus will shift to Xinjiang cotton growth conditions, new-crop opening prices, and the recovery of downstream orders during the 'golden September and silver October' peak season.