On August 3, reserve cotton sales maintained a 100% transaction rate for consecutive sessions, but the average price eased to 16,862 yuan/ton, down 96 yuan from the previous day. This price signal creates a subtle contrast with the full transaction rate: textile mills remain eager to restock but are increasingly sensitive to price ceilings. The 3128-equivalent price fell 48 yuan to 17,553 yuan/ton, indicating narrowing premiums for higher-grade cotton.
Price divergence widens between Xinjiang and imported cotton
Daily data show Xinjiang cotton averaged 16,583 yuan/ton, down 80 yuan, with a 3128-equivalent of 17,280 yuan/ton (down only 1 yuan). Imported cotton averaged 17,089 yuan/ton, down 62 yuan, with a 3128-equivalent of 17,775 yuan/ton (down 37 yuan). The spread between the two widened to 506 yuan/ton from about 500 yuan the prior day. Imported cotton's absolute price advantage narrowed, yet its average premium remained significantly higher at 1,609 yuan/ton versus 1,114 yuan for Xinjiang cotton. This indicates buyers still pay a notable quality premium for imported cotton, while pricing Xinjiang cotton more cautiously.
Cumulative transactions from July 20 to August 3 reached 88,208.582 tons, with a 100% transaction rate throughout. This sustained full subscription reflects low raw material inventories at mills and high operating rates. However, the consecutive price declines—especially the nearly flat 3128-equivalent for Xinjiang cotton—suggest downstream capacity to absorb high prices is approaching a tipping point.
Premiums shrink, market sentiment turns rational
The premium level is a key window into market sentiment. Xinjiang cotton's average premium of 1,114 yuan/ton has fallen notably from earlier peaks, while imported cotton's 1,609 yuan/ton, though lower than before, remains elevated. This divergence reflects two procurement logics: imported cotton stays sought after due to supply rigidity (quota limits, shipping schedules), while Xinjiang cotton, with relatively ample domestic supply, sees buyers restocking on demand and bargain-hunting.
For textile mills, current reserve cotton prices already exceed some spot market quotes, increasing the risk of chasing highs. Smaller mills may turn cautious and wait for further price corrections or utilize cheaper imported cotton quotas. Larger enterprises, by contrast, may leverage the stable supply of reserve cotton to lock in forward order costs, creating differentiated restocking strategies.
Transmission to the spot market
Reserve cotton prices have long been a bellwether for the spot market. The latest decline is expected to drag Xinjiang spot quotes down by 50-100 yuan/ton, while imported cotton may see limited room for correction due to exchange rates and logistics costs. For cotton traders, this spells depreciation pressure on previously high-priced inventories, urging faster destocking. For downstream grey fabric and fabric makers, slightly lower raw material costs help ease margin compression, though transmission to fabric prices will take time.
Worth noting is the real-time market tool launched by the National Cotton Exchange, which is changing how enterprises participate. Firms can now track transaction volumes and premium ratios dynamically, enhancing market transparency and price discovery. Going forward, the real-time nature of reserve sales data will become a key variable in corporate decision-making.