Reserve Cotton Auctions Keep Selling Out, Price Gains Signal Market Tightness

On August 28, reserve cotton auctions again closed with a 100% sell-through rate, with the average price rising 154.80 yuan/ton to 17,588.27 yuan/ton from the previous session. This marks another day of full subscription, reflecting urgent restocking demand from textile mills and market expectations of a structural shortage of high-grade cotton.

Auction Data Insights

The planned listing of 8,036.947 tons was fully sold, with the spread between the highest and lowest prices reaching 770 yuan/ton, indicating sustained bidding enthusiasm. Imported cotton averaged 17,606.96 yuan/ton, equivalent to 18,398.72 yuan/ton on a 3128B basis, with an average premium of 1,410.72 yuan/ton. Xinjiang cotton averaged 17,525.18 yuan/ton, equivalent to 18,051.88 yuan/ton, with a premium of 1,063.88 yuan/ton. The higher premium for imported cotton underscores mills' preference for its quality and reflects tight supply of high-grade domestic cotton.

Cumulatively, as of August 28, total reserve cotton listings reached 240,683.755 tons, all sold, with an average price of 17,263.96 yuan/ton (3128B: 17,911.18 yuan/ton). Imported cotton averaged 17,392.62 yuan/ton with a cumulative premium of 1,562.46 yuan/ton, while Xinjiang cotton averaged 16,977.75 yuan/ton with a premium of 1,147.35 yuan/ton. The persistent higher premium for imported cotton aligns with international price trends and exchange rate movements, indicating that mills' reliance on imported cotton remains strong.

Market Transmission and Industry Impact

The continuous 100% sell-through suggests that reserve sales have not alleviated market tightness but rather reinforced a "grab cotton" mentality. For mills, rising raw material costs, especially the widening premium for high-grade cotton, will directly compress yarn profit margins. If cotton prices stay elevated, downstream weaving and apparel may slow procurement, creating an "upper-hot, lower-cold" pattern.

Regionally, Xinjiang cotton, as the domestic staple, has a lower premium than imported cotton but still commands a decent price, benefiting local ginners and traders with smooth sales and good profits. The higher premium for imported cotton indicates that coastal textile clusters (e.g., Shandong, Jiangsu) maintain a clear preference for imported fiber, possibly linked to order structures such as high-count yarn for export to Europe and the US.

In the futures market, the spread between reserve auction average prices and the 3128B index serves as a reference for cash-futures basis. The current 3128B equivalent of 18,319.46 yuan/ton may show a premium over the Zhengzhou Cotton Exchange main contract, potentially attracting hedging activity; changes in warehouse receipts deserve attention.

Practical Recommendations

For Procurement Teams - Monitor daily reserve listing volumes and composition; if the share of imported cotton rises, adjust procurement strategies to avoid chasing high prices. - Compare premiums between imported and Xinjiang cotton; if the gap widens, consider prioritizing cost-effective Xinjiang cotton to reduce raw material costs. - Utilize futures instruments to lock in forward prices, hedging against spot volatility, especially during high-price fluctuations.

For Foreign Trade Enterprises - Incorporate cotton price fluctuations into quotations, using a floating pricing mechanism based on raw material costs plus processing fees to protect margins. - Monitor RMB exchange rate movements, as imported cotton costs are sensitive to FX; consider forward contracts to hedge currency risk. - Optimize product mix by increasing high-value-added products, reducing reliance on price-sensitive low-count yarns, and enhancing bargaining power.