Reserve Cotton Auction Heat Continues: July 27 Average Price Hits 17,275 Yuan, Import Premium Widens
On July 27, data from the national cotton reserve auction showed that textile mills' restocking demand remained robust despite rising prices. All 8,022 tons offered were sold, with an average price of 17,275 yuan per ton, up 58 yuan from the July 24 session. This level now exceeds current spot market prices, indicating that downstream mills are pricing in further price increases.
Import vs. Xinjiang Cotton: Divergent Premiums Reveal Structural Demand
A clear divergence emerged between imported and Xinjiang cotton in the auction. Imported cotton averaged 17,407 yuan/ton, equivalent to 18,072 yuan for Grade 3128B, with an average premium of 1,897 yuan over the base. In contrast, Xinjiang cotton averaged only 16,875 yuan/ton, equivalent to 17,557 yuan for 3128B, with a premium of 1,382 yuan. The premium gap of over 500 yuan underscores a strong preference for imported cotton among mills.
This preference is driven by quality and cost-effectiveness. Imported cotton (mainly from the U.S. and Brazil) typically offers better fiber length and strength, making it ideal for high-end yarns. As export orders demand higher yarn quality, mills are willing to pay a premium for imported cotton. The widening premium also suggests that import quota is tight, intensifying competition for reserve-sourced imported cotton.
100% Transaction Rate: Accelerating Inventory Drawdown and Rigid Restocking
As of July 27, cumulative reserve cotton sales reached 48,132 tons, all sold at a 100% transaction rate. This means every lot offered has been snapped up by mills, contrasting sharply with the frequent failed auctions seen during the same period in 2025.
The 100% rate reflects critically low inventory levels among textile mills. Industry data shows average raw material stocks are just 20-25 days, below the safety threshold. Facing the upcoming autumn-winter order season, mills must restock in August-September. Reserve cotton, with its stable pricing and assured quality, is the natural first choice.
Price Ripple Effects: Support for Yarn and Fabric Prices
While the 58 yuan increase in the average auction price is modest in absolute terms, its signaling effect is significant. As a government tool to regulate the market, reserve cotton prices are often seen as the market anchor. When this anchor moves up, spot prices tend to follow.
- For yarn mills: Higher raw material costs will compress margins, prompting some to raise yarn prices and pass costs downstream.
- For fabric mills: Higher yarn costs directly increase fabric production costs. With high fabric inventories, mills face a dilemma of rising costs but limited ability to raise selling prices.
- For apparel buyers: Increased yarn and fabric costs will eventually feed into garment prices. Autumn order procurement costs are expected to rise by 3-5%.
Outlook: Auction Heat Likely to Continue, But Policy Risk Looms
Based on current data, the intensity of reserve cotton auctions is unlikely to fade soon. Restocking demand remains strong, and the import premium persists, suggesting high transaction rates will continue. However, two risk factors warrant attention:
First, the National Development and Reform Commission may adjust the auction pace if prices rise too quickly. Increasing daily volumes or extending the sale period could be used to cool prices.
Second, international cotton prices are uncertain. If U.S. cotton production forecasts improve due to favorable weather, global prices may fall, narrowing the import premium.