The domestic cotton market experienced a dramatic reversal after the May Day holiday: the main Zhengzhou cotton futures contract briefly touched the key level of 17,000 yuan/ton but failed to break through decisively, then turned downward, accumulating a drop of over 600 points from its peak by the close on May 11. This pullback is not an isolated price fluctuation but a clear signal of a shift in market logic—the focus has moved from the low-inventory supply story to the weak demand reality of the slack season.
Demand Side: Slack Season Effect in Full Swing
The textile industry has officially bid farewell to the traditional peak season of 'Golden March and Silver April' and entered a seasonal demand trough. Looking at the transmission along the industrial chain, weak terminal orders are the core bearish factor. The current cotton yarn market shows clear structural divergence: high-end 40S high-count combed varieties have orders extending through July and August with prices remaining firm; while regular-count cotton yarn varieties are seeing a clear lack of follow-up orders, with mills generally lowering quotes by 100-200 yuan/ton and bargaining space widening.
The grey fabric market is under even more significant pressure. In core weaving regions like Foshan, the operating rate of circular knitting machines has fallen from peak season highs to a low of 40%. New order placements are insufficient, old orders are gradually winding down, and the industry is facing a 'gap between old and new orders.' Weak consumer demand in end-use apparel and home textiles has increased destocking pressure on downstream textile enterprises, leading to a continuous contraction in procurement demand for upstream cotton raw materials.
Supply Side: Low Inventories Provide Bottom Support
In contrast to weak demand, the supply pattern for domestic cotton spot goods remains tight. Commercial inventories continue to be drawn down and are at relatively low levels for the year. The scarcity of high-quality Xinjiang cotton—specifically double-29 grade with impurity content below 3%—is particularly pronounced, with basis remaining stable at 1,200 yuan/ton, giving high-quality spot goods strong pricing power.
This low inventory structure provides medium-term bottom support for cotton prices. However, in the short term, spot prices are following the futures market downward, showing significant co-movement. Downstream spinning mills adhere to a 'buy-as-you-use' principle, maintaining only routine replenishment for daily needs, with little willingness for large-scale stockpiling. Pre-season inventory has largely been consumed, while expectations of slack season demand weigh on restocking confidence. Coupled with limited profit margins for textile enterprises, this further suppresses enthusiasm for raw material replenishment.
Long-Short Game: Short-Term Pressure vs. Medium-Term Logic
The current cotton market is at a sensitive juncture where multiple factors intersect. Beyond the fundamental supply-demand weakness, the market faces two uncertainties: first, the upcoming visit of US President Donald Trump to China, which could disturb overall commodity market sentiment; second, persistent market rumors of state reserve cotton release expectations, which act as a major bearish factor suppressing upward price movement. Against the backdrop of weak slack season demand, the expectation of reserve release exacerbates concerns about increased supply, coupled with elevated valuations after the earlier price surge, prompting capital to seek safe havens and further driving long-position liquidation.
From a medium to long-term perspective, the supporting logic for the market remains intact. Domestic commercial cotton inventories are low, and the reduction in Xinjiang cotton planting area for the current year is a foregone conclusion, with the industry expecting a 3%-5% year-on-year decline in new season cotton production. The annual supply-demand gap for domestic cotton persists, with limited supplementary imports, and the overall tight balance has not fundamentally changed. As the traditional peak consumption season approaches in the second half of the year, terminal demand is expected to gradually recover, providing room for valuation repair after the pullback.