Why Cotton Mills Hesitate to Take Deliveries as Zheng Cotton Falls Below 16,000

Zhengzhou Cotton Exchange's main contract briefly broke below 16,000 yuan/ton recently, yet physical delivery warrants are not leaving warehouses at the expected pace. According to industry data, from July 9 to 15, daily net outflow of warrants plus valid declarations averaged only around 48 lots, roughly unchanged from late June to early July. This suggests mills and traders remain hesitant to take delivery, contradicting earlier expectations that lower prices would accelerate warrant liquidation.

Quality Concerns Dominate

A closer look at warrant composition reveals that high-premium warrants are heavily concentrated in cotton from Kashgar, Hami, Turpan and Gansu. While these origins command high premiums, industry sources widely report problems such as high sugar content, poor consistency and excessive micronaire values. For mills producing medium-to-high count or high-grade yarns, such cotton often disrupts blending and fails to meet quality standards. Many mills view these warrants as 'chicken ribs'—of little practical use—and prefer to source more reliable alternatives.

State Reserve Release Expectations

Another key factor is the market's anticipation of 2026 state reserve cotton auctions. Historically, reserve releases include a significant portion of high-quality imported and Xinjiang cotton, often at discounted prices. This expectation encourages mills to hold cash and wait for potentially cheaper, better-quality supplies rather than taking delivery of current warrants.

Imported Cotton Floods In

China's cotton imports surged in the second quarter of 2026. Since June, 2025/26 Australian cotton has been arriving and clearing customs, while port bonded warehouses still hold substantial stocks of medium-to-high quality Brazilian and US cotton. These imports offer superior consistency and competitive pricing, providing mills with a ready alternative to domestic warrants. The 'import substitution' effect is a major drag on warrant demand.

Implications for the Supply Chain

The slow warrant liquidation signals a structural shift in the textile industry: mills are increasingly prioritizing quality consistency over low cost. For ginners and traders, relying solely on high premiums to attract buyers may no longer work. Future warrant competitiveness will depend on better quality control at origin.

For Purchasers - Prioritize warrants from Xinjiang corps or other consistent origins; verify quality indicators before bidding. - Time procurement around imported cotton arrivals and state reserve auction schedules to avoid overpaying for high-premium warrants.

For Exporters - Monitor Australian and Brazilian cotton arrivals closely; use imported cotton to ensure stable yarn quality for export orders. - Avoid using high-sugar or inconsistent warrant cotton in high-value export products to minimize claim risks.