Domestic commercial cotton stocks have fallen sharply from 5.6981 million tons at the start of the year to 2.8388 million tons, a decline of over 50%, with Xinjiang stocks at just 1.6712 million tons. High-grade spot resources are tightening, and the new crop will not be widely available for nearly two months. It is in this sensitive window between old and new crops that CNCRC on July 14 released the 2026 reserve cotton sales rules, with the release starting July 20. Sales will be held on each working day, with total volume and end date unspecified, and daily volume adjusted flexibly based on market conditions.
Pricing and Access: Dual Signals of Policy Intent
This release features notable rule improvements. The pricing mechanism uses a dual anchor of domestic and international cotton spot indices, each with 50% weight, with the base price adjusted weekly. Based on recent spreads, the base price is around 16,216 yuan/ton, significantly below current spot prices, offering clear attraction for spinning mills. More importantly, only physical textile enterprises are allowed to bid, and all purchased reserve cotton must be used by the enterprise itself, with resale strictly prohibited. Violators face permanent disqualification. This effectively blocks traders and speculative capital, ensuring a more rational bidding environment, with transaction prices likely close to the base price.
The policy intent is clear: it is both a counter-cyclical adjustment to ensure supply and stabilize prices, and a targeted injection of support for downstream industry. Market consensus is that the released cotton will be mainly imported, with stable overall quality but limited high-grade content, unable to meet high-count yarn needs. This means the tight supply of high-quality Xinjiang cotton will not ease soon.
Industry Transmission: Supply Boost vs. Weak Demand
The core purpose of the reserve release is to fill the supply gap between old and new crops and smooth price fluctuations. But downstream demand does not cooperate. The industry is in its traditional off-season. Mill run rates in major regions have fallen to 73.1%, yarn inventories have accumulated to 30 days, and new orders are clearly insufficient. Mills are only purchasing for immediate needs, with little willingness to build stocks. The influx of new reserve cotton will struggle to find strong buying support in the short term, putting continuous downward pressure on prices.
However, medium- to long-term fundamentals remain solid. The global cotton supply-demand balance is tightening. The latest USDA report projects 2026/2027 global cotton production at 25.53 million tons, down 3.8% year-on-year. Combined with the current high domestic-international price spread of 3,010 yuan/ton, international price fluctuations will directly transmit to the domestic reserve base price through the pricing mechanism. A stronger international market will raise the cost of reserve releases, further limiting downside for domestic prices.
Market Game: Bulls and Bears at the 16,000 Yuan Mark
The negative impact of the reserve release was largely priced in earlier. On July 15, the main Zhengzhou cotton futures contract closed at 16,075 yuan/ton, down only 45 yuan. In the short term, when bidding begins on July 20, mills generally have low raw material inventories. Conventional yarn producers have strong replenishment demand and will likely bid actively, with some premium possible in early transactions. Such demand-driven buying can temporarily support spot and futures prices. Combined with the threat of high temperatures to Xinjiang cotton during the boll-setting stage, a deep price drop seems unlikely.
But as the release progresses, accumulated daily supply will gradually exert pressure. This supply increase will weigh on near-term contracts, with upward price movement clearly capped by policy. The 16,000 yuan level will be tested repeatedly. Looking further out, the reserve release only temporarily supplements short-term supply. It cannot change the core logic of global production cuts and domestic high-grade scarcity. As the release winds down, market focus will shift to Xinjiang crop conditions, new-crop opening prices, and the recovery of downstream orders during the peak 'golden September and silver October' season. Price support at the bottom remains solid.
Operational Recommendations
For Buyers - Conventional yarn mills should focus on the initial bidding window, using the price advantage of reserve cotton to replenish stocks and smooth raw material costs. - Mills specializing in high-count, high-end yarns still need to lock in high-quality Xinjiang spot cotton to hedge against the shortage of high-grade supply. - All bidding enterprises must strictly adhere to self-use rules to avoid losing trading qualifications.
For Exporters - Avoid large-scale stockpiling in the short term. Follow orders for flexible buying and selling, and continuously track daily release volumes, transaction rates, and premium levels. - If market transactions remain sluggish, spot prices may correct, offering opportunities to buy on dips. - For the medium to long term, consider building positions in high-quality Xinjiang cotton on pullbacks, betting on price opportunities from the new crop's production cuts.
Four Core Watch Points
The market's focus will center on four areas: daily release volume, transaction heat, and premium levels, reflecting true mill demand; temperature and rainfall changes in Xinjiang, assessing crop conditions during the boll-setting stage; downstream mill run rates, yarn inventories, and domestic/export order changes, tracking the pace of seasonal demand recovery; and the domestic-international price spread and US cotton trends, capturing the international linkage to domestic release pricing. The first day's bidding data on July 20 will be a key short-term signal. Industry participants should continuously track real-time release data and adjust procurement and trading strategies based on production area and downstream changes.