Zhengzhou cotton futures briefly tested the key 17,000 yuan/ton resistance after the May Day holiday but quickly reversed, falling over 600 points from the peak by May 11. This rapid shift reflects a change in market focus from tight supply expectations to weak seasonal demand.
Supply Side: Low Inventories Underpin, But Spot Market Lags
Domestic cotton commercial inventories are at low levels for the year, with destocking ongoing. High-quality Xinjiang cotton (double-29 grade, impurity below 3%) remains scarce, with basis stable at 1,200 yuan/ton. Spot prices have followed futures lower, but the decline is limited by tight supply. However, transaction volumes are extremely thin. Mills are adopting a hand-to-mouth procurement strategy, with no appetite for large stockpiling. Pre-season inventories have been consumed, and weak profit margins discourage active buying. The market is stuck in a stalemate: low stocks, falling prices, and sluggish trade.
Demand Side: Off-Season Weakness Triggers Negative Feedback Loop
The textile industry has exited the traditional peak season. Order differentiation is evident: high-end 40S compact and combed yarn orders are booked through July-August, but regular yarn varieties are seeing weak follow-up orders. Prices for regular yarns have been cut by 100-200 yuan/ton, while high-end products hold firm. The gray fabric market is under more pressure. Circular knitting machine utilization in core weaving hubs like Foshan has dropped to 40%, down sharply from peak season. New orders are scarce, and old orders are winding down. Weak demand from apparel and home textiles is forcing mills to destock, creating a negative feedback loop: futures fall → spot follows → end-users wait → demand weakens further.
Macro and Policy: Uncertainties Weigh on Sentiment
Beyond fundamentals, external factors are adding to volatility. Anticipation of Trump's visit to China is stirring commodity market sentiment. Meanwhile, persistent rumors of state reserve cotton auctions are capping price upside. In a weak demand environment, the prospect of additional supply from auctions, combined with elevated valuations after the earlier rally, has triggered long liquidation. Market sentiment is fragile, and any news can cause sharp intraday swings. However, the core fundamental changes—low inventories and expected production cuts—have not yet been fully priced in.
Medium-Term Outlook: Supply Gap Unresolved, Valuation Recovery Likely
In the short term, the combined headwinds of the textile off-season, weak orders, auction expectations, and macro uncertainty will likely keep Zhengzhou cotton in a weak consolidation range, with a core trading band of 16,000-16,800 yuan/ton. Upside resistance is strong. However, the medium-term support structure remains intact. Domestic commercial inventories are low, Xinjiang acreage has been reduced, and industry estimates a 3%-5% drop in new-crop production. The annual supply-demand deficit persists, and import supply is limited. The current pullback is more a function of seasonal weakness and sentiment than a structural reversal. As the second-half peak season approaches, demand recovery should unlock valuation repair. For buyers with medium-term needs, current levels may present a strategic entry point.