On July 20, a new round of central reserve cotton release will commence, with Zhengzhou cotton futures oscillating around the 16,000 yuan/ton mark. This policy lands amid the transition between old and new cotton seasons, commercial inventories at multi-year lows, and downstream textiles entering the off-season. The interplay of these factors creates a pattern of short-term pressure coexisting with medium-term support.
Supply Side: Low Inventories and Policy Intervention
According to China Customs data, domestic commercial cotton inventories had dropped to 2.8388 million tons by end-June from a peak of 5.6981 million tons at the start of the year, a decline of over 50%. Xinjiang production areas hold only 1.6712 million tons, and high-grade spot resources are tightening. With nearly two months until the new cotton harvest, the market faces the risk of a temporary supply shortage. This round of reserve cotton release aims to smooth this supply gap and prevent sharp price swings.
Regarding trading rules, this release adopts a dual-anchor pricing mechanism, weighting domestic and international cotton spot indices equally at 50% each, with the base price adjusted weekly. Based on recent domestic-international price spreads, the initial base price is about 16,216 yuan/ton, a clear advantage over current spot prices. Additionally, traders are explicitly banned; only physical textile enterprises can bid, and purchases must be for self-use, with violators permanently losing eligibility. This effectively isolates speculative capital, making the bidding environment more rational and transaction prices likely close to the base price.
The market generally believes that the released cotton will be mainly imported, with stable overall quality but a limited proportion of high-grade cotton, unable to meet high-count yarn production needs. The tight supply of high-quality Xinjiang cotton is unlikely to ease in the short term.
Demand Side: Off-Season Weakness and Rigid Demand Support
The downstream textile industry is currently in the traditional off-season, with factories facing insufficient new orders. Industry data shows that spinning mill operating rates in major regions have fallen to 73.1%, and yarn inventories have accumulated to 30 days. Enterprises are only replenishing for immediate needs, with little willingness to stockpile. The inflow of new reserve cotton will struggle to generate strong buying support in the short term.
However, mills generally have low raw material inventories, and demand for replenishment from regular yarn producers is strong. In the initial bidding phase starting July 20, participation is expected to be high, with some premium in early transactions. Rigid demand can provide a floor for spot and futures prices, especially with the added support from high-temperature-induced production cut expectations in Xinjiang, making a deep decline unlikely. But as the release progresses and daily supplies accumulate, the impact of increased supply will gradually pressure near-term contracts.
Global Perspective: Production Cut Expectations Build a Price Floor
Xinjiang cotton fields are currently in the critical boll development stage, with sustained high temperatures in July stressing growth, fueling market expectations of a new-season production cut. The latest USDA report forecasts 2026/27 global cotton production at 25.53 million tons, down 3.8% year-on-year, pushing the global supply-demand balance toward a tight equilibrium.
The domestic-international price spread remains high at 3,010 yuan/ton. Under the dual-anchor pricing mechanism, international price fluctuations directly transmit to the domestic reserve cotton base price. A stronger offshore market will raise the cost of the release, further limiting domestic downside. In the medium term, the release only temporarily supplements short-term supply; it cannot change the core logic of a global production cut and domestic high-quality cotton scarcity. As the release winds down, market focus will shift to Xinjiang cotton growth, new-season opening prices, and the recovery of downstream orders during the "golden September and silver October" peak season.