On August 31, the reserve cotton auction closed with a 100% transaction rate, with an average price of 17,568.87 yuan per ton, a mere 19.4 yuan drop from the previous session. Beneath this seemingly steady price lies a subtle divergence in cost tolerance across the textile supply chain. As the premium gap between imported and Xinjiang cotton narrowed from over 390 yuan to less than 117 yuan, market participants' expectations are undergoing structural adjustment.
Event Background
Since the launch of reserve cotton sales in August, cumulative listings and transactions both reached 248,685.418 tons, with the transaction rate consistently at 100%. The cumulative average price stood at 17,273.77 yuan per ton, equivalent to 17,920.93 yuan per ton on a 3128B basis, with an average premium of 1,419.33 yuan. Imported cotton averaged 17,399.18 yuan with a premium of 1,538.71 yuan, while Xinjiang cotton averaged 16,987.19 yuan with a premium of 1,146.52 yuan. These figures sketch a picture of urgent restocking demand ahead of the traditional peak season.
Notably, on that day, imported cotton transacted at an average of 17,556.01 yuan, equivalent to 18,198.89 yuan on a 3128B basis, with a premium of 970.89 yuan. In contrast, Xinjiang cotton averaged 17,653.30 yuan, equivalent to 18,315.75 yuan, with a premium of 1,087.75 yuan. The absolute price and premium of Xinjiang cotton both surpassed imported cotton, reversing the cumulative pattern where imported cotton carried higher premiums. What does this short-term price inversion imply? It suggests some mills are willing to pay a higher premium for high-grade Xinjiang cotton, while also indicating that the relative cost advantage of imported cotton is being reassessed.
Industry Impact
The 100% transaction rate is no accident. On August 31, the planned listing of 8,001.663 tons was fully transacted, with a high of 18,150 yuan and a low of 17,090 yuan, a spread of 1,060 yuan. This wide range reflects significant divergence in bidding strategies: some mills accepted high prices due to order delivery pressure, while others set strict cost caps. For textile mills, raw material inventory cycles have generally compressed to less than two weeks, and reserve cotton serves as a stable source that matches the fast-paced production scheduling.
However, the narrowing premium deserves attention. The average premium on that day fell by about 380 yuan compared to the cumulative average, indicating a cooling in bidding enthusiasm. Is this due to persistent uncertainty in downstream fabric and garment orders, or is it that funding cost pressures force mills to tighten raw material budgets? Industry feedback suggests that yarn prices are struggling to follow suit, with some varieties even experiencing inverted production-sales margins. If terminal demand fails to pick up, high-priced cotton will erode mill profits and curb future bidding interest.
Another key variable is the pace of policy adjustment. The daily release of around 8,000 tons effectively supplements market supply, but the cumulative volume of less than 250,000 tons is still a drop in the bucket compared to annual consumption. During the gap before the new crop arrives, reserve cotton prices effectively serve as the market's pricing anchor. If the new crop opening price falls significantly below the current auction average, mills may quickly shift to new cotton, pulling reserve auction prices down.