Domestic cotton commercial inventories have plummeted from a peak of 5.6981 million tons at the start of the year to 2.8388 million tons, a drop of over 50%. Xinjiang产区 stocks alone stand at just 1.6712 million tons. With a two-month window before the new crop hits the market, a temporary supply gap has already formed.
Policy Details: Dual Pricing and Entry Barriers
On July 14, CNCRC released the implementation rules for the 2026 reserve cotton sale, with the first round set for July 20. Daily release volumes are flexible, with no fixed cap or end date. The pricing mechanism uses a dual index weighting of domestic and international spot cotton prices, each accounting for 50%, with weekly adjustments. Based on recent price spreads, the first week's floor price is around 16,216 yuan/ton, offering a clear advantage over the spot market.
Only textile mills are allowed to bid, and all purchased cotton must be used internally. Resale is strictly prohibited, with violators permanently banned from future purchases. This effectively excludes traders and speculative capital. Market sources expect the released cotton to be mainly imported, with stable quality but limited high-grade content, failing to meet demand for high-count yarns. The tight supply of premium Xinjiang cotton will persist.
Industry Impact: Supply Meets Weak Demand
The downstream textile sector is in its traditional off-season. Mill operating rates in major regions have fallen to 73.1%, with yarn inventories piling up to 30 days. New orders are scarce, and mills are only restocking for immediate needs. The influx of reserve cotton is unlikely to attract strong buying interest in the short term.
However, mills' raw material inventories are generally low, and demand for standard yarn production remains. The first auction on July 20 is expected to see active participation, with possible premiums on early deals. This could provide temporary support for spot and futures prices. But as releases continue, the cumulative supply pressure will weigh on near-month contracts, limiting upside potential.
Global Fundamentals: Production Cuts Bolster Long-Term Floor
Globally, the latest USDA report projects 2026/27 world cotton production at 25.53 million tons, down 3.8% year-on-year, shifting the supply-demand balance toward tightness. Combined with a current domestic-international price spread of 3,010 yuan/ton, international price movements will directly affect the reserve floor price. A stronger foreign market would lift release costs, further compressing downside for domestic prices.
Domestically, Xinjiang cotton fields are in a critical growth phase, with persistent heatwaves since July raising expectations of lower yields. In the long run, reserve releases can only temporarily supplement supply; they cannot alter the core logic of global production cuts and domestic high-grade cotton scarcity. Once releases wind down, market attention will shift to Xinjiang crop conditions, opening prices, and the recovery of downstream demand during the 'golden September and silver October' season.