After the May Day holiday, the domestic cotton market experienced a sharp rally followed by a correction. The main Zhengzhou cotton contract briefly tested the 17,000 yuan/ton mark before facing significant resistance, falling over 600 points from its peak by May 11. Long positions were substantially reduced, and market sentiment shifted from exuberance to caution. This movement reflects the tug-of-war between short-term seasonal demand weakness and a medium-to-long-term tight supply-demand balance.
Low Inventories Meet Sluggish Trading
On the spot side, current commercial cotton inventories are at relatively low levels for the year, with high-quality resources becoming scarce. The basis for Xinjiang double-29 grade cotton with impurity below 3% remains stable at 1,200 yuan/ton, indicating strong bargaining power. However, spot prices have followed the futures decline, yet end-user procurement has not picked up. Spinning mills maintain a "hand-to-mouth" purchasing strategy, only replenishing for immediate needs, with little appetite for large-scale stockpiling.
The core reason: pre-season inventories have been mostly consumed, and expectations of a weak season suppress confidence. Combined with limited profit margins for textile mills, raw material buying enthusiasm is naturally low. Low inventories but quiet trading means there is no active upward momentum, and short-term prices are more influenced by futures sentiment and macro factors.
Seasonal Lull Fully Manifests
Entering May, the traditional "golden March and silver April" peak season has ended, and weak orders have become the key bearish factor capping cotton prices. The textile market shows structural divergence: high-end 40S compact and combed yarns have order backlogs extending to July-August, with mills operating steadily on existing orders. However, most regular-count yarn varieties face order shortages, and inventories are slowly accumulating.
On pricing, high-end varieties maintain firm pricing due to order support, while regular varieties have seen factory quotes lowered by 100-200 yuan/ton, with widening negotiation space. The grey fabric market shows a more pronounced downturn. In key weaving hubs like Foshan, circular knitting machine operating rates have fallen to 40%, with insufficient new orders and a clear "gap between old and new orders" issue.
- Final demand for apparel and home textiles is weak, increasing destocking pressure
- Downstream procurement continues to shrink, forming a negative feedback loop: futures fall → spot follows → end-users wait → demand weakens further
- This loop is difficult to break in the short term, limiting cotton price rebound potential
Multiple Uncertainties Amplify Volatility
Beyond weak fundamentals, the market faces multiple uncertainties. The upcoming visit of U.S. President Donald Trump to China may disrupt overall commodity sentiment, and the cotton sector is likely to fluctuate with macro sentiment. Meanwhile, persistent market rumors of reserve cotton release add another bearish factor. Against the backdrop of weak seasonal demand, the prospect of reserve release exacerbates supply glut concerns. Combined with previously elevated valuations, risk aversion has risen, prompting long-position liquidation and intensifying the short-term correction.
Medium-to-Long Term Support Intact
Despite short-term pressures, the medium-to-long-term support for cotton prices remains solid. Current commercial inventories are low, and the reduction in Xinjiang's annual planting area is confirmed. Industry estimates suggest a 3%-5% year-on-year decline in new season cotton production. The annual supply-demand gap persists, with limited import supplements, and the overall tight balance has not fundamentally changed.
This means that as the traditional textile consumption peak season approaches in the second half of the year, end-demand is likely to recover, and the corrected cotton prices have room for valuation repair. The short-term core trading range is expected to be 16,000-16,800 yuan/ton, but the medium-to-long-term upward logic remains valid.