The upcoming reserve cotton release on July 20 introduces a critical variable for China's domestic market as it transitions between crop years. According to the China Cotton Association, commercial inventories had dropped to 2.8388 million tons by early July, more than halved from the peak at the start of the year, with Xinjiang stocks at just 1.6712 million tons, tightening high-grade supply. Meanwhile, downstream textiles have entered the traditional off-season, with mill operating rates falling to 73.1% and yarn inventory building to around 30 days, reflecting weak new orders. This supply-demand tension has pushed the Zheng Cotton main contract to oscillate around the 16,000 yuan/ton mark, closing at 16,075 yuan/ton on July 15, down 45 yuan for the day.
Policy Adjustment: Flexible Pricing and Access Restrictions
Compared to previous years, this release features targeted rule optimizations. The pricing mechanism adopts a dual-anchor system, weighting both domestic and international cotton spot indices equally at 50%, with the base price adjusted weekly. The initial base price is about 16,216 yuan/ton, offering a clear advantage over current spot prices. Crucially, only physical textile enterprises are allowed to bid, and purchased cotton must be self-used, with resale strictly prohibited—violators face permanent disqualification. This effectively blocks traders and speculative capital, fostering more rational bidding, with transaction prices likely close to the base. Market expectations suggest the release will mainly consist of imported cotton, offering stable quality but limited high-grade content, failing to meet demand for high-count yarns, leaving the tight supply of premium Xinjiang cotton unresolved.
Supply Gap vs. Weak Demand: A Dual Challenge
The core purpose of this release is to bridge the roughly two-month supply gap between crop years. Inventory data shows commercial stocks fell from 5.6981 million tons at the start of the year to under 2.84 million tons by early July, a drop of over 50%. Xinjiang stocks alone are at 1.6712 million tons, with high-grade supply even scarcer. Without reserve cotton, the market could face temporary shortages, pushing up raw material prices. However, downstream demand remains weak: the off-season and insufficient new orders mean mills are only restocking on a need-to basis, with little appetite for hoarding. Once reserve cotton enters the market, it is unlikely to attract strong buying interest, capping price upside.
Global Production Cuts: Medium-Term Support
Globally, fundamentals provide a solid floor for cotton prices. The latest USDA report forecasts 2026/27 global cotton production at 25.53 million tons, down 3.8% year-on-year, shifting the supply-demand balance toward tightness. Meanwhile, the domestic-international price spread remains high at 3,010 yuan/ton. Under the dual-anchor pricing mechanism, international price fluctuations directly impact the reserve base price, meaning a stronger overseas market would raise release costs, limiting domestic downside. Additionally, Xinjiang cotton fields are in the critical boll development stage, with persistent high temperatures since July stressing growth, fueling expectations of a lower new crop. These factors collectively underpin medium-term price support.
Operational Rhythm: Cautious Short-Term, Opportunistic Long-Term
For industry participants, operational pacing must be flexible. In the short term, the first bidding round on July 20 may see strong participation from mills with low inventories, especially for regular yarn production, potentially driving some premium in early transactions, providing temporary support for spot and futures prices. However, as the release progresses, the cumulative supply will exert growing pressure on near-term contracts, with the 16,000 mark facing repeated tests. Over the medium to long term, the release only supplements temporary supply; it cannot alter the core logic of global production cuts and domestic premium cotton scarcity. As the release winds down, market focus will shift to Xinjiang crop conditions, new-crop opening prices, and downstream demand recovery during the 'golden September and silver October' season, with price support remaining robust.