China's reserve cotton release: implications for imported yarn market

Price convergence: China domestic carded yarn 32S from reserve cotton costs 23,500-24,000 yuan/ton, closely aligning with the 23,400-24,390 yuan/ton import cost for regular carded yarn, eroding the price advantage of regular imported yarns.

Market divergence: High-end combed yarns remain insulated, as the aged quality of reserve cotton (crop years 2019-2021) cannot support premium production, leaving a core space for high-quality imports.

Traceable yarn dilemma: While reserve cotton is largely imported

This round of China's reserve cotton release has effectively lowered the production costs for domestic yarn mills, exerting clear pressure on the imported cotton yarn market, likely to squeeze the market space for imported yarn.

Based on the latest industry survey data, the overall willingness of the 58 textile enterprises participating in the survey to bid for reserve cotton was steady, with moderate market participation.

In terms of prices, the base selling price for this round of reserve cotton release was around 16,209yuan/mt. The figure below shows the production cost for China domestic carded or combed yarn 32S versus the ordering cost for imported yarn.

The impact of this round of reserve release on imported cotton yarn covers both forward shipments and the spot market, with clear divergence across yarn varieties. Regular carded yarns are the most directly affected. The current comprehensive import cost for mainstream 32S is about 23,400-24,400yuan/mt, largely in line with the cost of domestic yarn from reserve cotton. The competitive advantage of regular imported yarns is not significant in terms of price or quality, and they will continue to face substitution pressure from China domestic yarns.

High-end combed varieties, however, show a differentiated trend. The production cost of China domestic compact-spun combed yarn 32S from reserve cotton is about 25,500-26,000yuan/mt, giving it a cost advantage over imported yarns of the same specification. However, the reserve cotton released in this round is mainly aged cotton from 2019-2021, with limited fiber quality, uniformity, coupled with poor impurity content performance, making it difficult to meet the requirements for high-count and high-end combed yarns. As a result, textile mills focusing on high-quality yarns have generally shown weak bidding interest, as state reserve cotton resources cannot effectively fill the raw material gap in the high-end cotton yarn market, thereby preserving a core market space for high-end imported yarns.

In overseas market, yarn prices continue to run firm, supported by rising international cotton prices, Overseas mills face high raw material costs and remain reluctant to sell at low prices, trying to hike quotations tentatively. This means the cost of subsequent imported yarn shipments to China will continue to rise.

Currently, placing orders for September-October forward shipments involves considerable uncertainty. If the transaction volume of this reserve release exceeds expectations, China domestic yarn supply will become more ample by the time forward cargoes arrive, exposing high-priced shipments to greater price downside and inventory risks.

In the spot market, the substitution impact is more direct. Current imported yarn 32S spot prices remain at 23,500-24,000yuan/mt, exactly in line with the cost range of yarn from reserve cotton. However, with landed costs already high, the downside room for imported yarn spot prices is limited, and the market faces immediate substitution pressure.

For traceable yarn, the reserve release also has a notable impact. The reserve cotton in this round is mainly imported cotton, which can meet downstream orders' origin traceability requirements. Therefore, mills focusing on traceable orders show relatively high bidding enthusiasm, as purchasing reserve cotton allows them to lock in costs, hedge against price increases, and meet traceability requirements, while avoiding long shipping times, exchange rate fluctuations, and unstable supply. This offers clear cost-performance advantages over imported yarn.

However, this substitution effect has clear barriers. The reserve cotton release process does not provide official traceability certification documents. Even if mills successfully bid for imported reserve cotton, they cannot issue corresponding origin certificates to downstream end customers. This shortcoming may reduce bidding willingness among traceability-oriented mills and ensures that imported traceable cotton yarn retains an irreplaceable market value, preventing the substitution effect from being fully realized.