The reserve cotton auction in the final week of August sent a subtle but telling signal: the clearance rate remained at 100%, yet the average premium narrowed noticeably compared with the cumulative level since mid-July. The weekly average price stood at 17,463 yuan/tonne, equivalent to 18,172 yuan/tonne on the 3128 index, with a premium of 1,184 yuan/tonne. In contrast, the cumulative average premium since the launch on July 20 has been as high as 1,434 yuan/tonne. This contrast suggests that textile mills are shifting from panic buying to selective purchasing.
Event Background
The reserve cotton release began on July 20 and by August 28 had offered 240,700 tonnes, all fully cleared. Weekly supply remained stable at around 40,000 tonnes, but bidding enthusiasm has subtly changed. In the latest week, Xinjiang cotton averaged 17,413 yuan/tonne with a premium of 1,051 yuan, while imported cotton averaged 17,482 yuan with a premium of 1,232 yuan. The price gap between the two narrowed to just 69 yuan, far below the 415-yuan difference seen in cumulative data, indicating that the premium advantage of imported cotton is compressing.
This shift stems from a combination of fluctuating international cotton prices and changing domestic supply-demand expectations. Imported cotton was previously sought after due to quota constraints and high logistics costs, but as port inventories recover and the yuan stabilizes, its cost-effectiveness has weakened. For mills, locking in costs is now more important than chasing quality amid high price volatility.
Industry Impact
Looking at the geographic distribution of winning bidders, Shandong, Hubei and Jiangsu together purchased 21,000 tonnes, accounting for 52.34% of the weekly total. This concentration is no coincidence—Shandong and Jiangsu are traditional cotton textile hubs with numerous small and medium-sized spinning mills that rely heavily on reserve cotton. Hubei has benefited from capacity transfers from the east and has seen rapid expansion in its spindle count. The dominance of these three provinces underscores that inland mills' rigid restocking remains the main driver of reserve cotton sales.
The narrowing premium may signal a marginal weakening in downstream orders. Typically, mills are willing to pay high premiums only when yarn margins are healthy. The recent moderation could reflect growing concerns about the risk of input costs exceeding output prices. On the other hand, the cumulative average price of 17,264 yuan/tonne (equivalent to 17,911 yuan on the 3128 index) remains below current spot market levels, reinforcing the role of reserve cotton as a price anchor and providing mills with a relatively low-cost source of raw material.
For upstream ginners and traders, the sustained release of reserve cotton is reshaping pricing power. As policy-driven supply becomes the norm, speculation on Xinjiang cotton is being curtailed, and spot prices are increasingly converging with reserve auction prices. This forces the upstream chain to track auction data more closely rather than relying solely on futures.