Reserve Cotton Floor Price Dips Further, Signaling a Potential Restocking Window for Mills

For the week of August 24-28, the floor price for central reserve cotton sales was set at 16,988 yuan per ton (based on grade 3128B), continuing its recent downward trend. For textile mills, this means the benchmark cost of raw materials has moved lower again, but whether it translates into actual profit depends on transaction outcomes and downstream demand.

Background

The current round of reserve cotton sales began on July 20, coordinated by relevant state departments and executed by China National Cotton Reserves Corporation. The weekly floor price is based on the standard grade 3128B, with adjustments for quality differentials per public inspection results and the quality price differential table issued by the China Cotton Association. This pricing mechanism directly reflects policy signals regarding market supply and demand.

Data shows the floor price for week six declined slightly from the previous week, extending a softer trend in reserve cotton prices. For mills, a lower floor price means marginal improvement in procurement costs, particularly for small and medium-sized spinners where raw materials account for a large share of costs, potentially affecting their willingness to take orders and their profit margins.

Industry Impact

The lower floor price directly reduces cotton costs for mills in the near term. Based on 16,988 yuan per ton, if actual transactions close near this level, yarn costs will ease, helping mills weather the off-season. However, the floor price is not the final transaction price; actual results depend on auction competition and quality premiums or discounts.

From a supply chain perspective, continued reserve sales add to market supply, putting downward pressure on spot prices. Yet, as the floor price approaches mills' psychological thresholds, some may begin restocking. If procurement demand concentrates, spot prices could find support and even rebound. Thus, the current period may represent a noteworthy window for mills with restocking needs.

For upstream ginners and traders, the lower floor price intensifies competition and raises the risk of holding inventories. With policy sales ongoing and demand not yet clearly recovering, traders with high-priced stocks may face greater financial strain, potentially accelerating industry consolidation.

Practical Recommendations

For Procurement Teams - Monitor weekly reserve cotton floor price changes and formulate phased purchasing plans based on order books, avoiding chasing highs or excessive waiting. - Calculate the spread between actual transaction prices and the floor price, prioritizing batches with reasonable quality premiums to control overall costs. - Use futures instruments to hedge price volatility and lock in future raw material costs.

For Export Enterprises - Lower raw material costs enhance export competitiveness; consider negotiating prices with clients to secure new orders. - Pay attention to RMB exchange rate and overseas demand, arranging order intake to avoid margin compression from potential raw material price rebounds. - Build long-term partnerships with spinning mills to ensure stable quality and price expectations, enhancing supply chain resilience.