Reserve Cotton Sales Maintain Full Clearance for Six Consecutive Weeks as Premiums Narrow, Signaling Shift in Mill Procurement Strategy

In the week of August 24-28, all 40,100 tonnes of reserve cotton offered were sold, but the average premium narrowed to 1,184 yuan/ton from 1,434 yuan/ton in the first week of the program. This signals that while mills still need to replenish inventories, they are increasingly cautious about chasing high prices.

Market Context

Since the launch of reserve cotton sales on July 20, cumulative offerings and transactions have both reached 240,683.76 tonnes, with a 100% clearance rate. As of August 28, the cumulative average price stood at 17,264 yuan/ton, equivalent to 17,911 yuan/ton on a 3128 basis. Xinjiang cotton averaged 16,978 yuan/ton, while imported cotton averaged 17,393 yuan/ton, a gap of 415 yuan/ton.

In the latest week, Xinjiang cotton averaged 17,413 yuan/ton and imported cotton 17,482 yuan/ton, with a narrow nominal gap of 69 yuan/ton. However, on a 3128-adjusted basis, the gap widened to 181 yuan/ton. The premium for imported cotton (1,232 yuan/ton) remained significantly higher than for Xinjiang cotton (1,051 yuan/ton), reflecting persistent demand for higher-grade imported fiber.

Industry Impact

Six consecutive weeks of full clearance indicate that mills are operating with lean inventories, making replenishment a necessity. Yet the narrowing premium—from 1,434 to 1,184 yuan/ton—suggests that mills are increasingly sensitive to cost pass-through constraints and are unwilling to overpay for raw materials.

Provincial data show that Shandong, Hubei, and Jiangsu together accounted for 2.1 million tonnes, or 52.34% of the weekly total. These provinces host major cotton textile clusters, and their purchasing activity is a barometer of downstream orders. Shandong, the largest buyer, relies heavily on reserve cotton for its pure-cotton yarn sector, while Hubei and Jiangsu, with more blended and home-textile production, show more flexible procurement behavior.

The widening gap between imported and Xinjiang cotton on a 3128 basis (18,220 vs. 18,039 yuan/ton) may encourage mills with import quotas to increase usage of imported cotton, potentially capping domestic price gains. Meanwhile, the shrinking premium indicates reduced speculative participation, shifting the market from sentiment-driven to fundamentals-driven.

Practical Recommendations

For Procurement Teams - Monitor premium trends; if the weekly premium falls below 1,200 yuan/ton for two consecutive weeks, consider slowing purchases to await dips. - Compare 3128-adjusted prices between Xinjiang and imported cotton; if the gap exceeds 200 yuan/ton, prioritize imported cotton to optimize costs. - Lock in forward contracts or use basis trading to hedge against price volatility.

For Export-Oriented Enterprises - Build raw material cost buffers into quotes, using floating pricing or short-term price locks. - Track reserve sales pace; if offerings increase, delay purchases to secure better prices. - Evaluate currency hedging benefits when importing cotton, but control exposure to exchange rate fluctuations.