In July, the first month of reserve cotton sales, 80,200 tonnes were sold with a 100% transaction rate, yet the monthly average transaction price fell to 17,253 yuan/ton, and daily average prices kept declining with narrowing premiums. This divergence between volume and price reflects a subtle shift in expectations along the cotton textile supply chain.
Supply-Demand Weakness and Price Transmission
July is traditionally an off-season for textiles, with weak downstream orders and rising inventories of cotton yarn and grey fabric. The release of reserve cotton increased supply, while demand was constrained by sluggish end-consumption, leading to a supply-demand double weakness that pressured Zhengzhou cotton futures and spot prices. Despite the full transaction rate, the narrowing premium indicates cooling bidding enthusiasm, with purchases mainly driven by rigid replenishment needs.
Structurally, Xinjiang cotton averaged 16,814 yuan/ton (converted to 3128 grade: 17,472 yuan/ton) with a premium of 1,253 yuan/ton, while imported cotton averaged 17,423 yuan/ton (converted: 18,026 yuan/ton) with a premium of 1,787 yuan/ton. The higher premium for imported cotton reflects stable demand for high-quality foreign fiber and the substitution effect for mills lacking import quotas. This divergence offers guidance for future raw material selection.
Regional Concentration and Stock Composition
By crop year, 2019 cotton accounted for 39.33% (31,500 tonnes), 2020 for 44.50% (35,700 tonnes), and 2021 for 16.17% (13,000 tonnes). The high share of older cotton implies shorter usable lifespan, urging mills to scrutinize batch quality to avoid degradation from prolonged storage.
Geographically, Shandong, Jiangsu, Zhejiang, Henan, and Hunan together purchased 54,500 tonnes, representing 67.96% of the total. Shandong, with its dense concentration of small and medium mills, relies heavily on reserve cotton; Jiangsu and Zhejiang are key cotton textile clusters. This concentration highlights reserve cotton's role in filling raw material gaps in major production areas, while also suggesting that mills in other regions may need to diversify sourcing strategies.
Implications for Mill Procurement
The persistent decline in reserve cotton prices offers cost-saving opportunities but also carries risks. If the downtrend continues, mills that bid aggressively early may face inventory depreciation. It is advisable for mills to rationally assess their order books and inventory levels, avoiding speculative buying or panic selling. For those needing imported cotton, monitoring the release pace of imported lots within the reserve can help lock in stable quality materials.