The reserve cotton auction on July 28 once again recorded a 100% clearance rate, but the average transaction price fell 88 yuan/ton from the previous day to 17,187 yuan/ton. This combination of full clearance and price softening is not a simple sign of robust supply and demand, but rather a snapshot of the textile industry seeking a new equilibrium between raw material inventory cycles and cost pressures.
Structural Divergence: Xinjiang Cotton vs. Imported Cotton
Data from the July 28 auction reveals that Xinjiang cotton achieved an average transaction price of 16,725 yuan/ton, down 151 yuan/ton from the previous day, with a conversion price to 3128 grade of 17,395 yuan/ton and an average premium of only 1,220 yuan/ton. In contrast, imported cotton averaged 17,384 yuan/ton, down just 23 yuan/ton, with a 3128 conversion price of 17,970 yuan/ton and a significantly higher premium of 1,795 yuan/ton. The nearly 575 yuan/ton gap in premium levels indicates that downstream mills are far more willing to bid aggressively for imported cotton.
This divergence stems from mills' considerations of quality consistency and spinning suitability. Imported cotton offers better uniformity in fiber length and strength, making it particularly suitable for high-count yarns and export orders with strict specifications. While Xinjiang cotton benefits from output scale and policy support, climate fluctuations in certain growing regions this year have led to batch-to-batch variability, causing mills to adopt a more cautious approach in bidding.
The Logic Behind Price Correction: Inventory Replenishment and Expectation Games
Since the current round of reserve cotton sales began on July 20, cumulative transactions have reached 56,138.551 tons, with a 100% clearance rate every session. On the surface, this suggests strong demand, but the steadily declining price—down another 88 yuan/ton on July 28—reveals that mills are not buying at any cost. Industry data shows that current cotton yarn mill raw material inventories are generally low, at about 25-35 days of consumption, below historical averages. This means mills have a genuine need to restock, but they are simultaneously facing pressure from finished goods inventory buildup and weak end-order volumes.
Under these conditions, reserve cotton offers a safety net with starting prices below spot market levels. Mills participate primarily to lock in relatively low-cost raw materials, not because they are bullish on future prices. Once prices begin to rise, their willingness to bid premium quickly diminishes, which is the underlying reason for the consecutive decline in auction averages. For buyers, the current strategy is "secure supply, but don't overpay."
Impact on Upstream and Downstream: Spinning Margins Improve Marginally but Remain Under Pressure
The downward trend in reserve cotton prices directly reduces raw material costs for the spinning sector. At the current reserve conversion price of approximately 17,799 yuan/ton for 3128 grade, compared to market quotes of 23,500-24,000 yuan/ton for 32s combed cotton yarn, theoretical spinning margins have improved slightly from last month. However, downstream fabric and garment orders have not yet shown significant recovery. Weaving mill operating rates remain around 60%, and their yarn purchases are mostly hand-to-mouth.
This means spinners face a dilemma: the margin improvement from lower raw material costs may be offset by downstream price pressure and weak order volumes. The high clearance rate in reserve auctions reflects more of a "passive restocking" rather than "active expansion." If end-user demand does not pick up in the next two months, inventory pressure may shift from raw materials to finished goods.