From end Mar, ZCE major cotton contract has risen from 14,000yuan/mt to 17,300yuan/mt, up by 3,300yuan/mt, mainly driven by supply side and various speculations. The capital continues to push up cotton prices. On the night of Jul 18, the state cotton reserves sales policy was announced, but the specific details have not been released. In face of the higher cotton prices, downstream spinners' operation status gradually turns weaker, and product inventory piles up. Operating rate of spinning mills continues to drop, especially the heavy losses. Currently, cotton yarn mills face several situations: 1) most spinners in inland face heavy losses, over 2,000yuan/mt on theory. Spinners in Xinjiang see less losses, but also step into losses. 2) Cotton yarn inventory is gradually accumulating, and the trend may sustain for a period. 3) Cotton yarn inventory at traders' hand and supply chain like is high, and some costs are low, so spinners may face difficulties in selling later. 4) Cotton inventory in spinning mills is not high. Some spinners have less cotton inventory, and to slow down the cotton consumption speed, they turn to produce high-count cotton yarn. 5) Possible power rationing may appear this year. Based on above conditions, operating rate of spinning mills is very likely to reduce further in the future.