The cotton textile industry chain is experiencing a dual shock from price and sentiment triggered by the release of reserve cotton. On July 29, China's reserve cotton management company sold all 8,021.8 tons of reserve cotton listed, with an average price of 17,077 yuan/ton, down 110 yuan from the previous day. Although prices fell slightly, the clearance rate has remained at 100% for consecutive days, with cumulative sales exceeding 64,000 tons, indicating strong market absorption capacity.
Structural divergence in trading, imported cotton commands higher premium
Data from the day shows a clear divergence between imported and Xinjiang cotton prices. Imported cotton averaged 17,256 yuan/ton, translating to 17,967 yuan/ton in 3128B grade, with an average premium of 1,792 yuan/ton. In contrast, Xinjiang cotton averaged 16,785 yuan/ton, translating to 17,419 yuan/ton, with a premium of 1,244 yuan/ton. The gap of nearly 550 yuan/ton in premiums reveals textile mills' stronger preference for imported cotton. This is driven by the persistent price inversion between international and domestic markets, as well as the superior quality and spinning adaptability of imported cotton. For mills, the high premium means higher raw material costs that directly feed into yarn prices.
Industrial logic behind full clearance
The consecutive 100% clearance rate of reserve cotton is no coincidence. Domestic commercial cotton inventories are at multi-year lows, with the new crop still months away, leaving mills facing a raw material gap. Meanwhile, autumn and winter orders are gradually picking up, boosting yarn demand and restocking intentions. As a policy tool, reserve cotton is priced at a discount to spot market levels, making it a target for mills. However, despite the slight price drop, absolute prices remain historically high, challenging cost control efforts.
Price volatility and the profit squeeze
The intraday price range on July 29 reached nearly 1,300 yuan/ton, from a high of 17,850 yuan/ton to a low of 16,560 yuan/ton. This volatility reflects growing market divergence—some mills bet on rising prices and bid high, while others constrained by capital and order margins can only participate in lower bids. For small and medium mills, high premiums mean rising procurement costs. If downstream fabric prices fail to keep pace, profit margins will be further compressed. Industry data shows that average gross margins for cotton textile enterprises have declined by about 2-3 percentage points year-on-year, making reserve cotton prices a key determinant of Q3 profitability.
Policy adjustment and market expectation rebalancing
The continued release of reserve cotton is essentially a policy signal to stabilize prices and ensure supply. Cumulative sales of 64,000 tons with full clearance indicate that the policy supply has not yet fully satisfied market demand. The pace and volume of future releases will directly shape market expectations. Increased supply may curb rapid price rises, while insufficient supply could fuel further bidding frenzy and premium expansion. For buyers, it is crucial to monitor daily reserve cotton listings and average prices, adjusting procurement strategies flexibly.