After the May Day holiday, Zhengzhou Cotton Futures briefly tested the 17,000 yuan/ton mark before retreating sharply, dropping over 600 points from its peak by May 11, as market sentiment shifted from euphoria to caution. This movement reflects a fierce tug-of-war between weak textile off-season demand and low spot inventory, with short-term bearish factors and long-term supply gaps reshaping the price logic.
Supply-Demand Mismatch: Low Inventory vs. Weak Demand
Domestic cotton commercial inventory is at a relatively low level for the year, especially for high-quality Xinjiang double-29 grade cotton, with basis stabilizing at 1,200 yuan/ton, giving spot sellers strong pricing power. However, downstream buying interest has not warmed up despite tight supply. Textile mills are adopting a 'buy-as-needed' strategy, maintaining only essential replenishment, with little appetite for bulk stockpiling. This 'low inventory but sluggish transactions' pattern shows that terminal demand suppression outweighs supply-side support.
From a chain perspective, low inventory should normally support spot prices, but as futures weaken, spot prices have followed suit, showing significant linkage. Without terminal demand cooperation, low inventory only provides a floor, not a driving force for price increases.
Deepening Off-Season Effects: Pressure from Yarn to Grey Fabric
May marks the official end of the 'golden March-April' peak season, entering a seasonal demand trough. Order differentiation is clear: 40S high-count compact yarn orders are extended to July-August with stable prices, while regular count yarns face weakening demand, with mills cutting prices by 100-200 yuan/ton and inventories slowly accumulating. The grey fabric market is under greater pressure, with core weaving areas like Foshan seeing circular knitting machine operating rates drop to 40%, far below peak levels, as new orders are insufficient and old orders wind down.
This structural differentiation reveals a polarizing trend in the textile industry: high-end products rely on stable orders, while low-end varieties suffer from weak consumer demand. For buyers, this means vastly different bargaining spaces across categories, with potential for further price concessions on regular items.
Macro and Policy Uncertainty Amplifies Volatility
Beyond fundamentals, the market faces multiple external variables. Expectations of a US President Trump visit to China are unsettling commodity market sentiment, with cotton likely to fluctuate with macro mood in the short term. Meanwhile, persistent rumors of state reserve cotton releases, against a backdrop of weak off-season demand, have heightened supply glut concerns, becoming a key bearish factor capping prices.
Notably, after the earlier price surge, valuations became stretched, prompting risk aversion and long-position liquidation, accelerating the pullback. This underscores the market's high sensitivity to policy uncertainty, where any news can trigger sharp short-term swings.
Medium-to-Long-Term Logic: Production Cuts and Supply Gap Provide Floor
Despite short-term pressure, the medium-to-long-term support logic remains intact. Xinjiang cotton acreage reduction is confirmed, with industry estimates of a 3%-5% year-on-year production decline. The domestic cotton supply-demand gap persists, and limited import supplements mean the tight balance remains unchanged. As the traditional consumption peak season approaches in H2, terminal demand is expected to recover, offering valuation repair potential for corrected prices.
The core contradiction is a time mismatch: short-term demand weakness versus medium-term supply tightness. The off-season effect is expected to last until June-July, during which the Zhengzhou cotton main contract will likely oscillate and seek a bottom in the 16,000-16,800 yuan/ton range. However, continued inventory drawdown and production cut expectations will gradually strengthen the price floor, setting the stage for a H2 rebound.