After the May Day holiday, the domestic cotton market experienced a significant reversal. The main contract of Zhengzhou cotton futures briefly tested the key 17,000 yuan/ton level but failed to break through, then turned downward, falling over 600 points from its peak by the close on May 11, confirming a short-term correction. The weakening trend was accompanied by a sharp reduction in long positions, declining trading activity, and a cautious market sentiment. This shift reflects a dual game between fundamentals and market expectations.
Low Spot Inventories Provide Floor Support
On the supply side, the domestic spot cotton market features tight inventories, price declines, and sluggish trading. Commercial cotton inventories continue to draw down, sitting at relatively low levels for the year, while spot basis remains firm, providing medium-term support for prices. High-quality Xinjiang cotton (double-29 grade, impurity below 3%) is particularly scarce, with basis stable at 1,200 yuan/ton, giving sellers strong pricing power. However, spot prices are following futures lower, showing high correlation.
End-user demand has not followed, with downstream spinning mills adhering to a 'buy-as-needed' approach, only maintaining routine replenishment. Large-scale stockpiling is generally weak. Pre-season inventory has been largely consumed, and weak off-season demand expectations dampen restocking confidence. Combined with limited profit margins, this further suppresses raw material buying. The spot market lacks upward momentum, with overall trading subdued.
Weak Off-Season Demand is Core Bearish Factor
Entering May, the textile industry has left the 'golden March and April' peak season and entered a traditional demand lull, with weak orders becoming the key drag on cotton prices. The market shows structural divergence and overall weakening. Only high-end 40S compact and combed cotton yarn orders remain relatively stable, with schedules extending to July-August, as mills mainly execute existing orders. Operations are generally steady.
Orders for other regular-count yarns are struggling, with clear signs of weakening demand. Spot yarn supply is loosening, and inventories are slowly accumulating. Price divergence is evident: high-end 40S yarn maintains stable pricing supported by firm orders, while most regular yarn varieties have seen factory prices cut by 100-200 yuan/ton due to falling futures and weak demand, widening negotiation room.
The grey fabric market is under even greater pressure, with weak end-product demand transmitting to the weaving sector, dragging down operating rates. In core weaving areas like Foshan, circular knitting machine utilization has fallen to 40%, down sharply from the peak season. New orders are insufficient, old orders are winding down, and the industry faces a gap in order flow. Weak consumption in apparel and home textiles is increasing destocking pressure downstream, further reducing cotton procurement. This creates a negative feedback loop—futures fall, spot follows, end-users wait, demand weakens—continuously suppressing cotton price recovery.
Multiple Uncertainties Amplify Volatility
Beyond weak fundamentals, multiple uncertainties are compounding Zheng cotton volatility. US President Donald Trump's recent visit to China could sway broader commodity market sentiment, with cotton likely to fluctuate with macro sentiment in the short term, adding uncertainty. Meanwhile, persistent market rumors of state reserve cotton sales are a major bearish factor capping prices. Against the backdrop of weak off-season demand, the prospect of reserve sales raises supply concerns. Combined with elevated valuations after the earlier rally, risk aversion is rising, prompting long liquidation and exacerbating the correction.
Overall, the cotton market now shows a divergent pattern: weak short-term demand versus tight medium-term supply. In the near term, the combined drag of the off-season, weak orders, reserve sales expectations, and macro noise suggests Zheng cotton will likely continue its weak, bottom-finding trend, with a core trading range of 16,000-16,800 yuan/ton and strong resistance above.
Medium-Term Tight Supply-Demand Logic Intact
However, the medium-term support logic remains solid. Domestic commercial cotton inventories are low, and Xinjiang's planted acreage has been reduced, with industry estimates of a 3%-5% year-on-year production decline. The annual supply-demand gap persists, and limited import supplements mean the overall tight balance has not fundamentally changed. As the traditional peak season approaches in the second half of the year, demand is expected to gradually recover, offering valuation repair potential after the correction.
For industry participants, caution is warranted regarding short-term downside risks from weak demand and macro uncertainty, but excessive pessimism is not advised. Tight inventories and the supply gap will provide a solid floor for cotton prices in the medium term. Amid market divergence, maintaining flexible strategies and monitoring key support levels will be crucial for navigating the current environment.