After the May Day holiday, Zhengzhou cotton futures experienced a typical surge-and-correction pattern. The main contract tested the key 17,000 yuan/ton level but failed to break through, falling over 600 points from its peak by May 11, with long positions significantly reduced. This movement reflects a tug-of-war between weakening seasonal demand and tight spot supply.
Demand Side: Seasonal Weakness Fully Emerges
The textile sector has exited the traditional 'golden March-April' peak season and entered a seasonal low. Terminal orders show structural divergence: high-end 40S compact yarn orders are booked through July-August with stable prices, while demand for regular-count yarns has weakened notably, with mills cutting prices by 100-200 yuan/ton. Gray fabric markets face even greater pressure. In key weaving hubs like Foshan, circular knitting machine operating rates have dropped to 40%, significantly down from peak season levels. New orders are insufficient, and old orders are winding down, creating a clear order gap. Weak demand in end-use sectors like apparel and home textiles is increasing destocking pressure downstream, further contracting cotton procurement.
Supply Side: Low Inventories and Output Cuts Provide Floor
Contrasting with weak demand, domestic cotton spot supply is tight. Commercial inventories continue to deplete, remaining at year-to-date lows, with spot basis remaining firm. High-quality Xinjiang cotton (double-29 grade, trash content below 3%) is particularly scarce, with basis stable at 1,200 yuan/ton, giving suppliers strong pricing power. More critically, Xinjiang's planted area for the new season is confirmed to decrease, with industry estimates of a 3%-5% production decline. The domestic cotton supply-demand gap persists, with limited import supplements, maintaining a tight balance.
Macro and Policy Variables: Reserve Release Expectations and External Disturbances
Market sentiment is also affected by multiple uncertainties. Expectations of state reserve cotton releases continue to pressure prices upward. In a weak demand environment, actual releases would exacerbate supply concerns, prompting further long-position unwinding. Meanwhile, President Trump's planned visit to China may impact overall commodity market sentiment, adding volatility to cotton prices.
In summary, short-term cotton prices are expected to trade in the 16,000-16,800 yuan/ton range, with strong resistance above. In the medium-to-long term, as the traditional peak season approaches in the second half of the year, demand is expected to recover, providing room for price revaluation after the correction.