On July 20, a new round of reserve cotton release will commence, with a base price of approximately 16,216 yuan per ton. This price offers a roughly 300 yuan discount to current spot market levels, presenting a clear incentive for mills with immediate needs. However, beneath this price advantage, structural contradictions between supply and demand are intensifying—inventories continue to draw down on the supply side, while demand languishes in the off-season doldrums. The 16,000 yuan per ton mark for Zhengzhou cotton futures has become the focal point of short-term bull-bear contention.
Supply Side: Structural Gap Amid Inventory Drawdown
The decline in domestic commercial cotton inventories has exceeded market expectations. From a peak of 5.6981 million tons at the start of the year to the current 2.8388 million tons, the drop exceeds 50%. Xinjiang production area stocks now stand at only 1.6712 million tons, with high-grade spot resources continuing to tighten. With nearly two months remaining until the new crop is concentratedly marketed, this window is the core gap that the reserve release aims to fill.
This release adopts a dual-anchor pricing mechanism, with domestic and international cotton spot indices each accounting for 50% weighting. The base price is adjusted weekly. Based on recent domestic-international price spreads, the base price is estimated at 16,216 yuan per ton, offering a clear advantage over current spot. Trading rules have tightened entry thresholds, limiting participation to physical textile mills for self-use only, prohibiting resale. This effectively excludes traders and speculative funds, fostering more rational bidding with transaction prices likely staying close to the base.
Notably, market consensus expects the released cotton to be mainly imported, with stable overall quality but limited high-grade content. For mills producing high-count, high-end yarns, the tight supply of premium Xinjiang cotton will not be alleviated in the short term. The reserve release can fill the quantity gap but cannot resolve the structural quality contradiction.
Demand Side: Off-Season Weakness vs. Restocking Necessity
The downstream textile market is in its traditional off-season. Operating rates at major mills have fallen to 73.1%, with yarn inventory accumulating to 30 days. Insufficient new orders have led to conservative procurement strategies, limited to essential restocking. In this demand environment, the incremental supply from the reserve release will struggle to attract strong buying support in the short term.
However, mill raw material inventories are also low. In the initial phase of the first auction, conventional yarn producers show robust restocking demand and high participation willingness. Essential demand can provide a floor for spot and futures prices, preventing a deep decline. Yet as the release continues, daily supply accumulation will gradually exert pressure on near-term contracts.
Global Fundamentals: Production Cut Expectations Build a Medium-Term Floor
Looking globally, the medium-term support logic for cotton prices remains intact. The latest USDA supply-demand report projects 2026/2027 global cotton production at 25.53 million tons, down 3.8% year-on-year, shifting the balance toward tightness. Concurrently, the current domestic-international price spread remains high at 3,010 yuan per ton. Under the dual-anchor mechanism, international price fluctuations directly transmit to domestic reserve base prices, with a stronger offshore market raising release costs.
Domestically, Xinjiang cotton fields are in the critical boll development stage. Persistent high temperatures since July have stressed cotton growth, intensifying market expectations for a new-season production decline. The reserve release can only temporarily supplement short-term circulating supply; it cannot alter the core logic of global production cuts and domestic premium cotton scarcity. As the release nears its end, market focus will shift to Xinjiang cotton growth, new crop opening prices, and downstream order recovery during the golden September-October peak season.