Post-May Day, Zhengzhou cotton futures experienced a roller-coaster ride. The main contract briefly touched the 17,000 yuan/ton mark before rapidly retreating, accumulating a drop of over 600 points by May 11. Long positions were heavily reduced, and market activity contracted significantly. This movement reflects a direct tug-of-war between weak off-season demand and support from low spot inventories.
Background
After the May Day holiday, the trading logic of the domestic cotton market underwent a fundamental shift. Pre-holiday optimism about consumption recovery pushed Zheng cotton to a short-term high, but it failed to break through the key resistance level of 17,000 yuan/ton. Subsequently, the market weakened, bullish momentum quickly faded, and sentiment turned cautious. By the close on May 11, the main contract had fallen over 600 points from its post-holiday peak, establishing a clear short-term bearish trend.
On the spot side, domestic commercial cotton inventories continue to deplete, sitting at a relatively low level for the year. In particular, high-quality Xinjiang cotton (double-29 grade, impurity below 3%) is scarce, with its basis stable at 1,200 yuan/ton, giving strong pricing power to holders of premium stock. However, spot prices are following futures downward, showing significant linkage, but end-user purchasing demand has not followed suit, resulting in sluggish overall trading. Downstream spinning mills are adhering to a 'buy-as-needed' principle, maintaining only routine replenishment, with little appetite for large-scale stockpiling.
Industry Impact
The textile industry has officially exited the 'golden March and silver April' peak season and entered the seasonal demand trough. Weak terminal orders are the core bearish factor suppressing cotton prices. The current order landscape shows structural divergence: only high-count compact and high-count combed cotton yarn (Ne 40) maintain robust demand, with orders extending into July-August. Other conventional yarn varieties face sluggish order follow-through, leading to gradually loosening supply and slowly accumulating inventories. Price divergence is evident: high-end Ne 40 yarn remains firm, while most conventional varieties have seen factory price cuts of 100-200 yuan/ton, with widening room for negotiation.
The grey fabric market shows an even more pronounced downturn. Weak demand for finished goods has transmitted to the weaving sector, where operating rates continue to fall. In core weaving areas like Foshan, circular knitting machine operating rates have dropped to 40%, a significant decline from peak season levels. New orders are scarce, old orders are winding down, and the industry faces a gap in order flow. Weak consumption in the end-use apparel and home textile markets is increasing destocking pressure on downstream enterprises, further contracting their procurement demand for upstream cotton, creating a negative feedback loop: 'futures drop → spot follows → end-users wait → demand weakens further.'
Beyond the weak fundamentals, multiple uncertainties are compounding Zheng cotton's volatility. Persistent market rumors of planned state reserve cotton releases are a major bearish factor suppressing prices. In the context of weak off-season demand, the prospect of reserve releases heightens concerns about supply loosening. Combined with elevated valuations after the earlier price surge, risk aversion is rising, prompting long positions to exit. Macro-level disturbances are also a factor; relevant diplomatic events could impact overall commodity market sentiment, and the cotton sector is likely to fluctuate in tandem with macro sentiment in the short term.
Overall, the current cotton market presents a divergent picture of weak short-term demand versus tight medium-term supply. The short-term core trading range is expected to be 16,000-16,800 yuan/ton, with strong resistance on the upside. However, medium-to-long-term support remains solid: domestic commercial inventories are low, Xinjiang's annual planting area is confirmed to be reduced, with industry estimates of a 3%-5% year-on-year production decline. The annual supply-demand gap persists, and supplementary imports are limited, meaning the overall tight balance has not fundamentally changed. As the traditional peak consumption season approaches in the second half of the year, corrected cotton prices have room for valuation recovery.