Cotton prices experienced a rapid rally and subsequent decline after the May Day holiday. The Zhengzhou cotton futures contract briefly tested the 17,000 yuan/ton level but failed to hold, falling over 600 points by May 11. Long positions unwound, market activity contracted, and a short-term weak adjustment pattern was established. The current volatility reflects a battle between weak off-season demand and low inventory support.
Low Inventory and Strong Basis: Supply-Side Support
Domestic cotton commercial inventories continue to deplete and are at relatively low levels for the year. High-quality Xinjiang cotton (double-29 grade, impurity below 3%) is scarce, with basis firmly maintained at 1,200 yuan/ton. Spot prices have followed futures downward but with less magnitude, indicating no panic selling. The supply side still provides medium-term support for cotton prices.
However, downstream buying interest has not picked up despite lower prices. Spinning mills adhere to a 'hand-to-mouth' procurement strategy, only replenishing for immediate needs. Bulk stocking willingness remains low as pre-season inventories are mostly consumed and off-season demand expectations dampen confidence. Limited profit margins for textile enterprises further suppress raw material replenishment. Spot market transactions are light, lacking upward momentum.
Off-Season Effects Fully Manifest: Demand Weakness
With the textile sector entering the traditional off-season after the 'golden March and April,' terminal order weakness has become the core bearish factor for cotton prices. Market orders show structural divergence: only 40S high-count compact and combed yarns maintain stable orders extending to July-August; other regular-count varieties face order shortfalls. Yarn inventories are gradually building. Price-wise, high-end 40S yarns hold firm on stable orders, while most regular varieties have seen factory price cuts of 100-200 yuan/ton due to falling futures and weak demand.
The grey fabric market shows an even sharper downturn. Circular knitting machine utilization in key hubs like Foshan has dropped to 40%, significantly below peak season levels. New orders are insufficient, and old orders are winding down. Weak end-consumer demand in apparel and home textiles increases destocking pressure on downstream mills, creating a negative feedback loop of 'futures fall - spot falls - end-user waits - demand weakens,' which continues to suppress cotton price recovery.
Multiple Uncertainties: Cautious Sentiment
Beyond fundamental supply-demand weakness, several uncertainties are compounding Zhengzhou cotton volatility. The upcoming visit of U.S. President Donald Trump to China may disturb overall commodity market sentiment, with cotton likely to follow macro fluctuations. Additionally, persistent market rumors of state reserve cotton auctions are a key bearish factor. Under weak off-season demand, auction expectations raise supply concerns. Given elevated valuations after the earlier rally, risk aversion has increased, prompting long liquidation and exacerbating the short-term correction.
Medium-Term Logic Unchanged: Supply Gap Supports Prices
In summary, the cotton market currently shows a divergence between short-term demand weakness and medium-term supply tightness. In the near term, the ongoing off-season, weak orders, auction expectations, and macro uncertainties suggest Zhengzhou cotton will likely continue a weak, bottoming-out trend, with a core trading range of 16,000-16,800 yuan/ton and strong resistance above.
However, medium-term support remains robust. Domestic cotton commercial inventories are low, and Xinjiang's planted area has been reduced, with industry estimates of a 3%-5% production decline for the new season. The annual supply-demand gap persists, and limited import supplements mean the overall tight balance remains unchanged. As the traditional consumption peak season approaches in the second half of the year, end-demand is expected to gradually recover, providing room for valuation repair after the correction.