On July 20, China's new round of reserve cotton release will officially commence, with policy details now clear. The 2026 sales rules published by China National Cotton Reserves Corporation adopt a dual-anchor base price mechanism, equally weighting domestic and international spot indices, with weekly dynamic adjustments. The current base price is approximately 16,216 yuan per ton, offering a clear discount to spot market prices. Trading is strictly limited to textile mills for self-use, with resale prohibited and violators permanently banned.
This policy aims to stabilize supply and prices, not merely suppress cotton prices. Domestically, commercial inventories have fallen from a peak of 5.6981 million tons at the start of the year to 2.8388 million tons, a decline of over half. Xinjiang region holds only 1.6712 million tons, with high-grade spot resources tightening. With nearly two months until the new crop arrives, the reserve release precisely fills this supply gap to prevent sharp price fluctuations.
Supply and Demand: Near-Term Pressure vs. Medium-Term Support
In the short term, the expected supply increase continues to pressure cotton prices. The downstream textile sector is entering a traditional off-season, with mill operating rates in major regions falling to 73.1% and yarn inventories piling up to 30 days. New orders are insufficient, and mills are only restocking for immediate needs. After the reserve cotton enters the market, strong buying support is unlikely in the near term, keeping Zhengzhou Cotton futures oscillating around the 16,000 yuan mark. On July 15, the main contract closed at 16,075 yuan per ton, down 45 yuan for the day.
However, the medium-term fundamentals remain constructive. The latest USDA supply-demand report projects global cotton production for 2026/27 at 25.53 million tons, down 3.8% year-on-year, shifting the global balance toward tightness. Combined with the current domestic-international price spread of 3,010 yuan per ton, international price movements will directly feed into the reserve release base price, limiting domestic downside.
Xinjiang cotton fields are in the critical boll-setting stage, with persistent high temperatures since July pressuring crop development, fueling expectations of a new-season production shortfall. The reserve release can only temporarily supplement short-term circulating supply; it cannot alter the core logic of global production cuts and domestic high-quality cotton scarcity.
Market Dynamics: First Auction as Near-Term Indicator
When the first auction opens on July 20, mills with low raw material inventories and strong demand for regular yarns are expected to bid actively, potentially driving some premium in initial prices. This genuine demand can provide a temporary floor for spot and futures prices. However, since daily offering volumes will be adjusted flexibly based on market conditions, with no predetermined total volume or end date, the supply overhang will build over time, pressuring near-month contracts.
From a medium-term perspective, once the release cycle ends, market attention will shift to Xinjiang cotton growth, new-crop opening prices, and downstream 'Golden September-Silver October' peak season order recovery. Price support remains solid, and far-month contracts benefit from weather risks and global production cut expectations, limiting downside.