On August 7, reserve cotton auctions continued their full-clearance streak since late July. All 8,018 tons offered were sold, with an average price of 17,136 yuan/ton, up 66 yuan from the previous session. At first glance, this modest gain seems unremarkable, but it reflects a delicate balance between supply and demand in the textile raw material market: mills' restocking demand remains rigid, while a structural shortage of high-grade cotton is becoming a key driver pushing the price center higher.
Structural Divergence Behind Auction Data
The most notable aspect of the day's data is not the overall average price but the premium gap between imported and Xinjiang cotton. Imported cotton fetched an average premium of 1,810 yuan/ton, nearly 600 yuan higher than Xinjiang cotton's 1,213 yuan. After converting to the 3128B standard, the price difference stood at 597 yuan. This divergence is not a one-off—cumulative data through August 7 shows imported cotton's average premium at 1,761 yuan versus 1,208 yuan for Xinjiang cotton, with a gap consistently above 500 yuan.
This indicates that despite an apparent overall supply sufficiency, the market clearly prefers imported cotton (especially US and Brazilian) over Xinjiang cotton. The reasons are twofold: imported cotton often better meets the quality requirements for high-count yarns and differentiated products in terms of fiber length and strength; additionally, some mills have rigid procurement needs for imported cotton to meet traceability requirements for export orders. This structural divergence is reshaping mills' procurement strategies—no longer simply comparing prices, but securing sources by product positioning.
Implications of a 100% Clearance Rate
Since the reserve cotton release began in late July, cumulative offered volume of 120,259 tons has been fully sold, maintaining a 100% clearance rate. This is rare in the past three years' release programs, especially against a backdrop of thin spinning margins and fragile order recovery. It speaks volumes about market sentiment.
From the demand side, mills' active participation is essentially a precautionary lock-in of future raw material supply. With new crop cotton still a month away and commercial inventories relatively low, reserve cotton—offering the best cost-performance—has become a battleground. From the price side, the cumulative average price of 17,173 yuan/ton (equivalent to 17,801 yuan for 3128B grade) remains slightly below comparable spot market levels, explaining the sustained auction heat.
Notably, average prices have risen for two consecutive sessions (Aug 6-7), and the highest cumulative price reached 19,370 yuan/ton, suggesting some mills bid aggressively. This may imply that certain companies expect even higher prices during the new crop procurement season and prefer to lock in raw materials now at slightly higher costs rather than face later uncertainty.
Transmission to Upstream and Downstream
The steady rise in reserve cotton auction prices is transmitting along the supply chain. For yarn mills, every 100 yuan/ton increase in raw material costs roughly translates into a 150-200 yuan/ton cost increase for 32-count pure cotton yarn. If cotton prices hold at current levels, yarn prices are likely to find cost support, squeezing margins for weaving and apparel segments.
For buyers, it is not advisable to chase prices excessively at this point. International cotton prices are volatile due to weather disruptions in major producing countries and dollar fluctuations. Before the new crop arrives, the pace of reserve cotton releases remains a key variable. If daily offerings stay around 8,000 tons, monthly supply of about 170,000 tons should cover mills' rigid demand, limiting upside potential.