In July, reserve cotton sales achieved a 100% transaction rate, yet the price curve declined steadily. A total of 80,200 tonnes were transacted, with monthly average price at 17,253 yuan/tonne, equivalent to 17,871 yuan/tonne on a 3128 basis, and an average premium of only 1,638 yuan/tonne. The divergence between volume and price reflects the subtle balance between spinners' restocking willingness and market supply rhythm.
Background
The reserve cotton sales started on July 20, coinciding with the traditional off-season for textiles. Downstream orders were weak, inventories of cotton yarn and grey fabric accumulated, and Zhengzhou cotton futures fell. Despite this, all listed resources were fully transacted, indicating persistent rigid demand for reserve cotton, especially from small and medium spinners with insufficient raw material stocks and textile enterprises lacking import quotas.
From the transaction structure, Xinjiang cotton and imported cotton showed divergent trends. Xinjiang cotton averaged 16,814 yuan/tonne (17,472 yuan/tonne on 3128 basis) with a premium of 1,253 yuan/tonne, while imported cotton averaged 17,423 yuan/tonne (18,026 yuan/tonne on 3128 basis) with a premium of 1,787 yuan/tonne. The significant premium for imported cotton reflects spinners' preference for higher-grade cotton, also indicating room for improvement in domestic cotton quality stability.
By production year, 2019 crop accounted for 31,500 tonnes (39.33%), 2020 crop for 35,700 tonnes (44.50%), and 2021 crop for only 13,000 tonnes (16.17%). The high proportion of older cotton implies spinners balance cost-effectiveness against quality, with low prices partially offsetting quality disadvantages.
Industry Impact
The full transaction but falling prices reveal a shift in spinners' restocking logic. Early in the month, bidding was active, but turned rational by mid-month, with narrowing premiums day by day, indicating spinners are unwilling to pay excessive premiums for forward raw materials amid weak orders. This cautious "buy-as-needed" approach will continue to cap cotton price upside in the short term.
Regional concentration is high, with five provinces (Shandong, Jiangsu, Zhejiang, Henan, Hunan) accounting for 54,500 tonnes, or 67.96% of the total. These are major cotton textile clusters and major users of imported cotton. Reserve cotton supply has effectively alleviated raw material gaps, but also diverted some demand from imported cotton, possibly affecting future foreign cotton procurement.
For upstream ginners and traders, the declining average price of reserve cotton, coupled with new crop expectations, suggests cotton prices are unlikely to trend upward before September. Spinners should take advantage of the relatively stable reserve cotton prices to lock in some low-cost raw materials, avoiding passive chasing when demand recovers.