The average price of reserve cotton sales climbed from 17,264 yuan/ton in July to 17,463 yuan/ton by late August, yet the average premium narrowed from 1,434 yuan/ton to 1,184 yuan/ton. This divergence reveals a nuanced market sentiment: raw material costs are rising, but mills are increasingly cautious about chasing higher prices.
Event Background
Public data from the China Cotton Information Network shows that during the week of August 24-28, 40,100 tons of reserve cotton were offered and fully sold, maintaining a 100% clearance rate for consecutive weeks. The weekly average price was 17,463 yuan/ton, equivalent to 18,172 yuan/ton on a 3128 standard basis, with an average premium of 1,184 yuan/ton. Xinjiang cotton averaged 17,413 yuan/ton, while imported cotton averaged 17,482 yuan/ton, a narrow gap of 69 yuan/ton. However, after conversion to the 3128 standard, the gap widened to 181 yuan/ton, indicating that quality discounts are gaining weight in pricing.
Since the start of this round of sales on July 20, cumulative sales reached 240,683.76 tons, all cleared, with an average price of 17,264 yuan/ton. Imported cotton has consistently commanded a higher cumulative premium of 1,562 yuan/ton versus 1,147 yuan/ton for Xinjiang cotton, underscoring a persistent preference for high-grade foreign fiber. Provincial data shows Shandong, Hubei, and Jiangsu together purchased 21,000 tons, accounting for 52.34% of the week's total, reinforcing the concentration of textile capacity in coastal and central core regions.
Industry Impact
The narrowing premium does not signal weaker demand but rather a strategic compromise among mills at elevated cotton prices. The domestic-import price inversion has not fully corrected, and reserve cotton remains a cost-effective supplementary source, so clearance rates stay full. Yet rationalized bidding means that when prices breach psychological thresholds, mills may turn to commercial cotton or wait for lower floor prices, potentially pressuring Zhengzhou futures.
For upstream ginners, sustained high reserve prices provide a floor for new-crop seed cotton purchasing, but the narrowing premium cautions against over-ambitious opening prices. For downstream weavers, especially small and medium spinners where raw materials account for over 70% of costs, the current premium of around 1,000 yuan per ton is still passable, but further narrowing could squeeze yarn price adjustments.
Geographically, the purchasing concentration in Shandong, Hubei, and Jiangsu aligns with local spindle capacity. Shandong's heavy reliance on Xinjiang and imported cotton makes its activity a key indicator for destocking. Hubei and Jiangsu's participation suggests that with freight subsidies and import quota allocations, inland mills are diversifying supply channels, which helps flatten regional price differentials.