In the week of August 24-28, the average transaction price of reserve cotton stood at 17,463 yuan/ton, equivalent to 18,172 yuan/ton on a 3128 basis, with an average premium of 1,184 yuan/ton. On the surface, a 100% transaction rate suggests sustained market heat. However, compared with the cumulative average premium of 1,434 yuan/ton since the start of the release on July 20, this week's premium narrowed by 250 yuan/ton. What does this mean? Mills' willingness to chase higher prices is cooling, and the reserve cotton's role as a safety net is becoming more prominent than its appeal as a hot commodity.
Event Background
The reserve cotton release began on July 20, and by August 28, cumulative listed volume reached 240,683.76 tons, all transacted, with a cumulative average price of 17,264 yuan/ton (18,048 yuan/ton on 3128 basis). Among them, Xinjiang cotton averaged 16,978 yuan/ton, while imported cotton averaged 17,393 yuan/ton, with imported cotton's 3128-equivalent price 441 yuan/ton higher than Xinjiang's, reflecting its continued quality premium.
Weekly data further breakdown: Xinjiang cotton averaged 17,413 yuan/ton, imported cotton 17,482 yuan/ton, a spread of only 69 yuan/ton, far narrower than the cumulative gap. This suggests that the premium for imported cotton was compressed this week, possibly due to changes in the composition of imported cotton offered or a marginal shift in mill preferences. In terms of premiums, Xinjiang cotton saw 1,051 yuan/ton, imported cotton 1,232 yuan/ton, still favoring imported, but overall premium levels have retreated from July's highs.
Geographically, Shandong, Hubei, and Jiangsu combined for 21,000 tons, representing 52.34% of the week's total. This is not coincidental—Shandong and Jiangsu are major cotton textile hubs, while Hubei has expanded its spinning capacity through industrial transfer. The concentration of transactions in these provinces indicates that inventory strategies of mills in these regions directly determine the pace of reserve cotton sales, and also implies that inland textile capacity is more active than Xinjiang's local sector.
Industry Impact
The narrowing premium reflects downstream order signals. Current cotton yarn prices are struggling to follow cotton's rise, while gray fabric mills are pressing prices, squeezing spinners' margins. Reserve cotton, as a cost-effective raw material, maintains a 100% transaction rate because of essential demand, but rationalized premiums indicate that enterprises are unwilling to pay high prices. For buyers, this means upward resistance for cotton prices in the short term, yet the reserve floor price (around 18,172 yuan/ton on 3128 basis) provides a clear price anchor.
Another signal is the narrowing spread between imported and Xinjiang cotton. Cumulatively, imported cotton's 3128-equivalent price is 441 yuan/ton higher, but this week it was only 69 yuan/ton. This may relate to recent fluctuations in international cotton prices and exchange rates, or it may indicate that mills are reducing their reliance on imported cotton—after all, reserve imported cotton is stable in quality, but Xinjiang cotton also offers consistency. For traders, the arbitrage space for imported cotton is shrinking, necessitating a reassessment of inventory structures.
From an industrial belt perspective, the concentrated transactions in Shandong, Hubei, and Jiangsu imply relatively high operating rates in these regions. However, the declining premium also suggests that these enterprises are compressing raw material costs, preparing for autumn/winter orders while maintaining caution about future prices. This pattern of stable volume with shrinking prices is likely to pressure cotton prices in the short term, but the limited weekly release (around 40,000 tons) keeps market impact manageable.