On August 3, reserve cotton sales closed with a 100% transaction rate, with all 8,014.6 tons sold, but the average price of 16,862 yuan/ton fell 96 yuan from the previous day. This marks the second consecutive trading day of price declines, while the 3128-grade equivalent price of 17,553 yuan/ton fell more moderately, indicating a widening gap between high-grade and low-grade cotton. For textile mills, this is not just a fluctuation in price numbers but a subtle shift in the raw material cost structure.
Event Background
The current round of reserve cotton release started on July 20, and by August 3, cumulative sales reached 88,208.6 tons, with a 100% transaction rate throughout. This "sell-out upon listing" rhythm is uncommon in the past three years of reserve cotton rotations, suggesting that mills' raw material inventories are not ample and restocking demand is rigid. However, the average transaction price has slipped from above 17,000 yuan/ton at the start to current levels, a cumulative decline exceeding 1.2%, indicating the market's acceptance of high prices is waning.
By category, Xinjiang cotton averaged 16,583 yuan/ton with a premium of 1,114 yuan/ton, while imported cotton averaged 17,089 yuan/ton with a premium of 1,609 yuan/ton. The imported cotton premium over Xinjiang cotton is about 500 yuan/ton, far exceeding historical levels for this period, reflecting mills' strong preference for imported cotton quality and hinting that domestic cotton still has room to improve in consistency and micronaire.
Feedback from major cotton textile clusters in Shandong, Henan, and Jiangsu indicates that buyers generally feel the current bidding premium is near their psychological ceiling. Some enterprises are turning cautious, waiting for further price corrections before restocking, which could be a potential signal for fluctuations in future transaction rates.
Industry Impact
The coexistence of a 100% transaction rate and falling prices may seem contradictory but reveals market stratification. On one hand, ample total supply caps the overall price center; on the other, high premiums indicate scarcity of high-quality resources. This "loose total, tight structure" pattern imposes higher demands on cost control for downstream yarn mills.
For spinning mills, raw material costs typically account for over 70% of total costs. A 100 yuan/ton drop in reserve cotton price reduces per-ton yarn costs by about 150-200 yuan. If the price correction trend continues, enterprises that bid aggressively earlier will face inventory depreciation pressure, while wait-and-see buyers gain better entry points. However, the high premiums suggest the market is not bearish on future cotton prices; any supply disruption could trigger a rapid rebound.
Foreign trade enterprises face another challenge. With RMB exchange rate fluctuations and high ocean freight, export order profits are already thin. While falling reserve cotton prices help reduce immediate procurement costs, if customers demand renegotiation, profit improvements may be eroded. More critically, forward-order raw material locking strategies need reassessment—in a downward price channel, over-locking may miss lower costs.
From a supply chain perspective, cotton price movements typically transmit to cotton yarn and grey fabric with a 1-2 month lag. The current reserve cotton transaction pace shows mills are actively stocking up, implying stable yarn supply in Q3 and intensified price competition. For fabric and garment companies, this may be a window to optimize supplier structures.