On July 27, all 8,022 tons of reserve cotton offered by China Reserve Cotton Management Co. were fully sold, with an average price of 17,275 yuan/ton, up 58 yuan from July 24. This marks another day of 100% turnover since the start of the reserve cotton release program. As of that date, a cumulative 48,132 tons of reserve cotton had been sold without a single failed auction.
Structural Demand Divergence
The day's data reveals a clear structural pattern. Imported cotton sold at an average of 17,407 yuan/ton, equivalent to 18,072 yuan/ton for grade 3128B, with an average premium of 1,897 yuan/ton. In contrast, Xinjiang cotton averaged 16,876 yuan/ton, equivalent to 17,557 yuan/ton for grade 3128B, with a premium of 1,382 yuan/ton. The price gap exceeding 500 yuan/ton reflects mills' stronger preference for imported cotton, which offers more consistent quality, lower impurity levels, and better strength—critical for producing mid-to-high-end yarns.
Drivers Behind Full Turnover
The full sale of reserve cotton is not merely a sign of market exuberance. From a supply chain perspective, the cotton textile industry is at the tail end of its traditional off-season, with gray fabric and finished fabric orders showing signs of recovery. Mills generally maintain low raw material inventories, so once orders materialize, restocking demand surges. Reserve cotton, as a price stabilizer, offers a clear cost advantage—its average price is below comparable grades in the spot market, explaining why each tranche is quickly absorbed.
Price Transmission and Cost Pressure
At an average price of 17,275 yuan/ton, the equivalent grade 3128B cotton has reached 17,944 yuan/ton, approaching the 18,000 yuan/ton threshold. For downstream mills, this means that cotton accounts for about 70% of the cost of 32-count combed cotton yarn. If cotton prices remain above 17,500 yuan/ton, mill profit margins will be significantly squeezed. Some small and medium enterprises may face a dilemma: accept orders at a loss or stop production. Notably, imported cotton commands a higher price but still sees strong acceptance, suggesting that the end market is increasingly tolerant of higher prices for quality products.
Implications for Procurement Decisions
The booming reserve cotton sales essentially represent a concentrated vote by the market on expectations of higher cotton prices. However, mills should be wary of chasing prices. Internationally, cotton prices are supported by weather disruptions in major producing countries and declining global inventories, while domestically, they are moderated by the pace of reserve releases and import quota policies. In the short term, cotton prices are likely to remain elevated and volatile, with limited upward momentum.