The ongoing reserve cotton auctions are sending a strong market signal. On July 27, China National Cotton Reserves Corporation offered 8,022 tons for sale, all of which were sold, maintaining a 100% turnover rate for consecutive sessions. The average price reached 17,275 yuan/ton, up 58 yuan from the previous session, and the price converted to 3128B grade hit 17,944 yuan. This pattern of full sales and gradually rising prices is reshaping short-term expectations in the cotton market from both supply and demand perspectives.
Imported Cotton Premium Reveals Structural Shortage
Daily transaction data shows that imported cotton averaged 17,407 yuan/ton, with a converted 3128B price of 18,072 yuan and an average premium of 1,897 yuan. In contrast, Xinjiang cotton averaged 16,876 yuan/ton, with a converted price of 17,557 yuan and a premium of only 1,382 yuan. The premium for imported cotton was 37% higher than that for Xinjiang cotton, a gap that is no coincidence. Public industry data indicates that domestic high-grade cotton inventories are tight, and mills' reliance on imported cotton has increased further during the hot and humid season, as imported cotton offers superior consistency and strength indicators.
Looking at the transaction range, the highest price of 17,970 yuan and the lowest of 16,630 yuan show a spread of 1,340 yuan, which has narrowed compared to earlier periods. This signals two things: first, downstream mills' acceptance of high-priced cotton is diverging, with some small and medium enterprises hitting cost ceilings; second, large mills are still actively buying to lock in quality raw materials.
Logic Behind Full-Volume Sales
As of July 27, cumulative reserve cotton sales reached 48,132 tons, all sold, with a 100% turnover rate. This "zero rejection" scenario has been rare in recent years. The core driver is the shift in mills' inventory cycles. According to the National Bureau of Statistics, yarn and fabric output grew year-on-year in the first half of the year, but raw material inventories remained low. When orders pick up and operating rates rise, restocking demand concentrates, making reserve cotton the most direct supply channel.
For mills, reserve cotton acts as a pricing anchor. Current spot market quotes for Xinjiang cotton fluctuate between 17,000 and 17,500 yuan/ton, and the reserve average of 17,275 yuan sits in the middle, neither at a significant discount nor a premium. This suggests that policy aims to stabilize rather than suppress prices, with market pricing largely determined by supply-demand dynamics.
Price Transmission and Downstream Pressure
Rising cotton prices are being passed downstream. The grey fabric market has seen tentative price hikes, but the recovery of end-use apparel orders is not yet solid, and fabric buyers have limited tolerance for price increases. If cotton prices persist above 17,200 yuan/ton, the profit margins of small and medium weaving enterprises will be further squeezed, potentially forcing some to reduce operating rates.
From a regional industrial cluster perspective, raw material procurement patterns in Nantong home textiles and Keqiao fabric clusters are diverging. Large enterprises rely on long-term contracts and futures to maintain stability, while small and medium factories depend more on reserve auctions and spot purchases, leading to higher cost volatility. This structural cost difference will influence industry concentration over the next one to two quarters.
Practical Recommendations
For Buyers - Monitor reserve auction pace; if the premium for imported cotton remains higher than for Xinjiang cotton, consider increasing imported cotton purchases when the premium declines. - Current cotton prices are at mid-to-high levels for the year; phase in purchases to avoid chasing highs. If downstream orders do not clearly pick up, keep inventory cycles under 30 days. - Watch August auction announcements; if volumes increase, it may temporarily pressure prices, creating a good opportunity to restock.
For Export Enterprises - With CNY exchange rate fluctuations and rising cotton prices, export quotes should include buffers for both exchange rate and raw material costs. Consider using a "floating price + fixed processing fee" model to lock in forward order profits. - For orders to the US and EU, prioritize imported cotton to avoid compliance risks related to Xinjiang cotton, and use the high premium signal to convey quality premiums to customers. - Monitor Southeast Asian yarn price trends; if the domestic-foreign price gap widens, consider increasing imported yarn substitution to reduce raw material cost pressure.
The 100% turnover rate for reserve cotton is unlikely to break in the short term, but further upside is limited by downstream affordability. The transition from the traditional off-season to peak season in late July to August will determine whether cotton prices continue to rise or consolidate at high levels.