After the May Day holiday, the domestic cotton market failed to sustain its pre-holiday rally. The main Zhengzhou cotton futures contract briefly tested the key 17,000 yuan/ton mark before turning sharply lower. By the close on May 11, it had fallen over 600 points from the holiday high, a correction deeper than market expectations. This move reflects a deep tug-of-war between weak seasonal demand and tight spot stocks, with the market's trading logic shifting from supply-driven to demand-driven.
Short-Term Correction: Multiple Bearish Factors Converge
The immediate trigger for the price decline was the seasonal contraction in downstream demand. After May, the textile industry officially exits the 'golden March-April' peak season and enters a traditional consumption lull, with weak terminal orders becoming the core bearish factor. Feedback from industrial clusters shows clear structural divergence: orders for premium 40S high-density and compact yarns are scheduled through July-August, with mills mainly executing existing orders. In contrast, conventional yarn counts face order shortfalls, spot supply is loosening, and inventories are slowly accumulating. Mills have generally cut prices by 100-200 yuan/ton, and bargaining space is expanding.
The grey fabric market is showing an even more pronounced downturn. In key weaving hubs like Foshan, the operating rate of circular knitting machines has fallen to 40%, a sharp drop from peak season levels. New orders are insufficient, old orders are winding down, and the industry faces a pronounced 'gap period' between order cycles. Weak consumer demand in apparel and home textiles is increasing downstream destocking pressure, continuously shrinking procurement demand for upstream cotton. This has formed a negative feedback loop: futures fall, spot prices follow, terminals wait-and-see, and demand weakens further.
Beyond fundamentals, market sentiment is also disrupted by multiple uncertainties. The recent visit of U.S. President Donald Trump to China has caused volatility in the broader commodity market, and the cotton sector is likely to fluctuate with macro sentiment in the short term. Meanwhile, persistent market rumors of state reserve cotton releases are another significant bearish factor capping price upside. Against the backdrop of weak seasonal demand, the expectation of reserve releases exacerbates concerns over supply loosening. Combined with elevated valuations after the earlier price surge, risk aversion is rising, and long positions are being liquidated, further accelerating the short-term correction.
Spot Market Firmness: Low Inventories Provide Medium-Term Support
Despite the pressure on the futures market, the domestic cotton spot market presents a different picture. Commercial cotton inventories continue to decline, with overall levels at a year-to-date low. Spot basis remains firm. In particular, high-quality Xinjiang cotton (double-29 grade, impurity below 3%) is increasingly scarce, with basis stable at 1,200 yuan/ton, giving premium spot supplies strong pricing power.
However, the spot price decline has not sparked terminal buying enthusiasm. Downstream spinning mills generally adhere to a 'buy-as-needed' principle, maintaining only routine replenishment for daily needs. Willingness to build large inventories is weak. Pre-season stockpiles have been largely consumed, seasonal demand expectations suppress restocking confidence, and limited profit margins at textile enterprises further curb raw material procurement. The spot market lacks active upward momentum, exhibiting a typical state of 'priced but not traded'.
From a supply-demand perspective, this divergence between short-term weak demand and medium-term tight supply is the core contradiction in the current cotton market. Industry data shows that the reduction in Xinjiang's new-season planting area is a done deal, with an estimated 3%-5% year-on-year decline in new-crop output. The annual domestic cotton supply-demand gap persists, and with limited supplementary imports, the overall tight balance remains fundamentally unchanged.
Outlook: Valuation Recovery Opportunity Amidst Correction
In the short term, the market will continue to face multiple bearish pressures. The lingering effects of the textile off-season, weak terminal orders, reserve release expectations, and macro sentiment volatility will likely keep Zhengzhou cotton in a weak, bottom-seeking pattern. The core trading range for the near term is expected to be 16,000-16,800 yuan/ton, with strong resistance on the upside.
However, the medium-term support logic is strengthening during this correction. Domestic commercial cotton inventories are low, and the new-crop production cut is confirmed. The existence of a supply-demand gap means cotton prices do not have the foundation for a deep decline. As the traditional peak season approaches in the second half of the year, terminal demand is expected to gradually recover, and post-correction cotton prices will have room for valuation recovery. For buyers, the current price range offers a window for bargain hunting; for mills, they should guard against short-term volatility and manage raw material inventory levels prudently.