On July 14, 2026, China Cotton Reserve Management Co., Ltd. issued the "Detailed Rules for the Sale of Central Cotton Reserves (2026)," specifying that the sale of reserve cotton would officially commence on July 20.
Key details
Start Date: July 20, 2026; sales take place on statutory working days.
Sales Method: Public listing and competitive bidding via the National Cotton Exchange Market.
Pricing Mechanism: Based on a weighted average of domestic and international cotton spot price indices (50% weight each), adjusted weekly.
Eligible Bidders: Textile enterprises only; cotton must be for internal use and cannot be resold.
Release Volume: Daily listing volumes are flexibly adjusted based on market conditions; no specific total volume has been set.
Analysis of the Impact on the Cotton Market
1. Short-term supply side: Periodic expansion in supply, suppressing near-month prices.
The rotation of cotton reserves directly increases the volume of cotton available for market circulation. Based on 2023 operations and a conservative estimate of 10,000–12,000 tonnes per day, the potential supply released over the approximately 30 trading days from July 20 to the end of August could reach 300,000–360,000 tonnes.
Regarding market impact, since the market had already been pricing in expectations of reserve sales since May, Zhengzhou cotton futures remained weak in the short term following the official announcement; on July 14, the main contract closed at 16,070 RMB/ton, down 55 yuan. With insufficient upward momentum for near-month contracts, the market is likely to experience weak, fluctuating performance.
2. Pricing mechanism: Curbing speculation and aligning transaction prices with the reserve price.
The pricing mechanism for this auction employs a "dual-anchor" approach based on domestic and international cotton price indices, aligning with prevailing market conditions. The reserve price—calculated based on last week's market rates—stands at approximately 16,216 yuan per ton, offering a clear price advantage over spot market rates.
Crucially, participation is restricted to textile enterprises, with resale strictly prohibited; by excluding traders and speculative capital, the intensity of bidding is effectively tempered, making it highly likely that transaction prices will hover close to the reserve price. This reflects a policy stance aimed at ensuring supply and stabilizing prices without deliberately suppressing them.
3. Demand side: Weakness during the off-season; insufficient absorption capacity.
The textile industry is currently in a traditional off-season for consumption; key data are as follows:
Textile mill operating rate: Dropped to 73.1%
Yarn inventory: Accumulated to a 30-day level
Purchasing strategy: Mills are primarily replenishing stocks to meet immediate needs, with little inclination to actively build up inventory.
The release of cotton reserves will further divert mills' demand for spot purchases; given the lack of effective demand-side absorption in the short term, the premium on spot prices may continue to compress.
Overall, the release of cotton reserves during the July–September transition period between old and new crops has served to ensure supply and stabilize prices, exerting short-term downward pressure on the market, though the scope for further decline remains limited. Key factors to monitor going forward include daily release volumes, auction clearance rates, weather conditions in Xinjiang, and the pace of order intake during the "Golden September and Silver October" peak season. While robust initial auction activity is likely to provide a temporary floor for prices, the market faces a risk of downward pressure as the release cycle extends.
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