For the sixth consecutive week, reserve cotton sales hit a 100% transaction rate. In the week of Aug 24-28, all 40,100 tons offered were sold, with an average price of 17,463 yuan/ton, equivalent to 18,172 yuan/ton on a 3128 basis, and an average premium of 1,184 yuan/ton. On the surface, textile mills remain eager to restock, but the premium has narrowed notably from the cumulative average of 1,434 yuan/ton since July 20. This subtle shift deserves more attention than the full transaction rate itself.
Signals Behind the Data
The narrowing premium suggests that bidding companies are no longer willing to pay excessive premiums. The weekly price gap between Xinjiang cotton (17,413 yuan/ton) and imported cotton (17,482 yuan/ton) was only 69 yuan/ton, but on a 3128-equivalent basis, the gap widened to 181 yuan/ton (18,039 vs. 18,220 yuan/ton). This indicates that the market still recognizes the scarcity of high-grade cotton, but bidding for ordinary grades has become more rational.
Cumulatively, since July 20, reserve cotton sales have totaled 240,683 tons, with a 100% transaction rate and an average price of 17,264 yuan/ton. Xinjiang cotton averaged 16,978 yuan/ton with a premium of 1,147 yuan/ton, while imported cotton averaged 17,393 yuan/ton with a premium of 1,562 yuan/ton. The persistently higher premium for imported cotton underscores a structural shortage of high-grade domestic cotton. Reserve cotton prices are gradually moving toward market equilibrium.
Regional Dynamics and Industrial Chain Transmission
Provincial data for the week shows that Shandong, Hubei, and Jiangsu together purchased 21,000 tons, accounting for 52.34% of the weekly total. Shandong's strong cotton textile capacity drives rigid demand; Hubei and Jiangsu are known for home textiles and high-end fabrics, respectively. This concentration suggests that downstream orders are not universally weak but are focused on specific categories such as home textiles, high-count yarns, and blended fabrics. However, the narrowing premium also hints that final consumer demand is not robust enough to support aggressive bidding, and yarn inventory destocking may be slower than expected.
For textile mills, the sustained full transaction rate indicates a policy floor: reserve cotton prices serve as a market anchor, limiting downside for cotton prices. But the narrowing premium also implies that if the supply gap narrows before the new crop arrives, prices could correct. The basis between Zhengzhou cotton futures and spot prices is currently reasonable, but the spread between reserve cotton average price and spot has compressed to within 200 yuan/ton, leaving little room for hedging. Mills should avoid chasing prices aggressively.
Outlook and Recommendations
With the new crop expected to hit the market in about a month, reserve cotton remains a key supply regulator. If weekly transaction rates stay at 100% but premiums continue to decline, it would indicate weakening downstream acceptance and a possible price standoff. Conversely, a rebound in premiums would signal stronger-than-expected demand. Policy-wise, watch for adjustments in reserve cotton offering volumes or composition, as well as the pace of sliding-scale quota releases, which will directly affect imported cotton supply.