On July 20, 2026, China Reserve Cotton Management Co., Ltd. officially launched the public auction of central reserve cotton, with the first week's floor price set at 16,291 yuan per ton. This price is nearly 1,368 yuan per ton lower than the current spot price of standard-grade lint cotton in the inland market (17,659 yuan per ton), a gap exceeding 7.7%. For spinning mills long burdened by high raw material costs, this is a much-needed relief.
Background: How Reserve Cotton Release Reshapes Supply-Demand Dynamics
The release policy comes against the backdrop of a period of tight supply in the domestic cotton market in the first half of 2026, with Zhengzhou cotton futures briefly breaking above 16,500 yuan per ton. The precise injection of reserve cotton aims to directly offset mills' raw material shortages while curbing speculative sentiment. According to the announcement, bidding eligibility is strictly limited to textile mills, institutionally cutting off channels for traders to hoard.
Data shows the policy's immediate effect. This week, the average settlement price of Zhengzhou cotton futures main contract was 16,057 yuan per ton, down 0.9% from the previous week; the National Cotton Price B Index averaged 17,659 yuan per ton, a decline of 0.5%. Notably, the domestic-international cotton price differential narrowed by 310 yuan per ton from the prior week, a drop of 9.7%, indicating that domestic cotton prices fell faster and imported cotton's relative cost advantage is diminishing.
Industry Impact: Upstream and Downstream Transmission and Regional Differences
The direct impact of reserve cotton release is concentrated in the mid-to-upstream of the cotton textile chain. On one hand, mills' raw material procurement costs could substantially decline. A first-week floor price of 16,291 yuan per ton means that if transaction prices are close to this level, mill cotton costs could drop by nearly 8% compared to the spot market. This helps improve mill profit margins, especially for mainstream products like C32S combed yarn, whose current average price is 23,318 yuan per ton with raw material costs accounting for about 70%.
On the other hand, it indirectly pressures substitute fibers. This week, polyester staple fiber prices bucked the trend, rising 223 yuan per ton to 7,455 yuan per ton, a 3.1% increase far exceeding the cotton price decline. This suggests that under the expectation of weaker cotton prices, some mills may accelerate the shift to polyester blends, but the tight supply of polyester staple fiber and support from raw material PTA costs limit its downside.
From a regional perspective, cotton fields in Xinjiang are growing steadily thanks to suitable light and heat, but local persistent high temperatures require vigilance. In Hunan and Hebei, cotton has entered the boll-setting stage. Hebei plants have over 10 bolls at the bottom, but high temperatures during the dog days may limit the number of top bolls, constraining unit yields. This means that if adverse weather occurs later, the supply increase from reserve releases could be offset by production cuts, limiting cotton price downside.
Macro and Trade: Double Squeeze from Tariffs and Inflation
Global cotton markets face a more complex macro environment. US tariff policies continue to ferment. In June, the US Treasury paid approximately $49.2 billion in tariff refunds due to a Supreme Court ruling that some tariffs were illegal, pushing the monthly deficit to $120 billion. However, the US still plans to impose 25% tariffs on thousands of Brazilian goods from July 22, covering categories such as apparel, motors, and paper. This has dual implications for textile exporters: on one hand, the Brazilian real may weaken, enhancing Brazilian cotton export competitiveness and suppressing US cotton prices; on the other hand, tariffs on finished products like apparel will directly impact China's apparel export orders to the US.
Global inflation expectations are rising. The New York Fed survey shows over 40% of firms plan to pass on tariff costs through price increases. Brent crude oil has broken above $88 per barrel. The combination of energy and tariff costs is pushing up global textile production and logistics costs. For Chinese mills, the uncertainty of foreign demand recovery has increased, and the recovery of export orders still needs monitoring.