On August 4, reserve cotton auctions once again closed with a 100% clearance rate, with an average price of 16,901 yuan per ton, up 39 yuan from the previous day. This marked the 12th consecutive full-clearance session since the current sales round began on July 20, with cumulative sales reaching 96,222.818 tons. At a time when the textile industry is transitioning between peak and off seasons, such a pace of transactions sends signals worth interpreting across the supply chain.
Transaction Structure: Widening Price Gap, Imported Cotton Premium
Daily data showed Xinjiang cotton averaged 16,537 yuan per ton, down 46 yuan, while imported cotton averaged 17,136 yuan, up 47 yuan. After conversion to 3128 standard, the gap widened to 599 yuan per ton. Imported cotton's average premium reached 1,643 yuan per ton, far exceeding Xinjiang cotton's 1,058 yuan.
This structure indicates textile mills' stronger pursuit of imported cotton. The reason lies in stricter requirements for fiber length and strength in high-count yarns and high-value fabrics, where imported cotton still holds advantages in consistency. Additionally, divergent price trends between international and domestic markets make imported cotton more cost-effective. For buyers, this means competition for foreign-origin reserve cotton will intensify.
Industry Impact: Three Logics Behind High Clearance Rates
The consecutive full clearance is not simply a story of cotton shortages. From an industrial perspective, three logics support this trend:
- First, mills' inventory levels remain low, compressing the restocking window. Orders have warmed up since July, but raw material inventories typically sit at 10-15 days, far below the 30-day average of previous years, forcing mills to secure supply through auctions.
- Second, precautionary purchases against supply uncertainty. With new cotton harvest months away, and international shipping and exchange rate fluctuations disrupting imports, reserve cotton serves as the most reliable spot source.
- Third, high premiums reflect a sentiment of "grab now or lose out." The basis between futures and spot still offers room, making auction prices attractive compared to some spot channel quotes.
However, sustained high clearance may be borrowing from future restocking demand. If downstream orders disappoint, cotton acquired at high premiums could face inventory devaluation. For small and medium mills, capital pressure cannot be ignored.
Practical Recommendations
For Buyers - Monitor the daily price gap between Xinjiang and imported cotton. If the gap exceeds 600 yuan per ton, prioritize Xinjiang cotton to reduce costs; otherwise, increase bidding for imported cotton. - Set a maximum premium limit to avoid emotional bidding eroding profit margins. A reference range of within 500 yuan per ton against the 3128 price-to-spot spread is advisable.
For Foreign Trade Companies - Use reserve cotton transaction data as a pricing reference, adjusting cost calculations for export fabric orders, especially high-density and high-count products. - Establish price linkage mechanisms with clients, incorporating raw material price fluctuation clauses into contracts to hedge against cotton cost increases.
In summary, the heat in reserve cotton sales is unlikely to reverse in the short term, but price volatility risks are accumulating. Textile enterprises should view high clearance rates rationally, focusing on order delivery and inventory turnover rather than blindly chasing highs.