Following the holiday break, the domestic cotton market experienced a slight pullback after an initial rise, though prices generally remained at elevated levels; meanwhile, the cotton yarn market saw significant price increases driven by rising production costs. As of May 8, the benchmark spot price for 21S cotton ring-spun yarn in China's Shandong region stood at approximately 23,200 RMB/ton—an increase of 200 RMB/ton from the previous week—while the spot price for 32S cotton ring-spun yarn was around 24,600 RMB/ton, up 225 RMB/ton from the previous week.

Brief Market Analysis:

During the May Day holiday period, persistent drought conditions in major U.S. production regions sparked market concerns regarding supply. Upon the market's reopening after the holiday, the Zhengzhou Cotton futures market—buoyed by optimistic sentiment—saw its benchmark contract gap up at the open, subsequently surging to a new high. Meanwhile, as profit margins for spinning mills declined significantly, prices for cotton yarn rose passively in response; however, following this price hike, the market largely proved unwilling to accept the new price levels. Compounding this situation, the downstream textile industry has begun to enter its traditional off-season; weaving enterprises are currently focused primarily on fulfilling existing orders, leading to a slowdown in yarn trading and a prevailing "wait-and-see" sentiment across the market. While order volumes remain relatively stable for large-scale manufacturers, small and medium-sized enterprises are experiencing a decline in orders. Trading activity for 40S combed yarn remains normal, whereas transaction volumes for other yarn varieties have decreased.

Recently, overseas offer prices for imported yarn have remained relatively stable. Although the RMB exchange rate has strengthened, current import costs for cotton yarn remain at a high level—a lingering effect of the sharp price increases seen in imported yarn during the preceding period. Consequently, activity in the domestic market consists primarily of inquiries, with actual purchasing interest remaining weak. Domestic sales of imported yarn are proceeding at a pace driven solely by immediate, essential demand; downstream enterprises show only moderate acceptance of the elevated yarn prices, and spot market prices have not exhibited any significant fluctuations. Operating Status: Following the holiday period, some smaller mills have yet to resume operations. With the market's traditional slack season fast approaching, the operating rates of yarn mills have been scaled back. According to statistics, as of May 7, the operating rate for cotton yarn enterprises stood at 69.82%, representing a month-on-month decline of 0.36%.

Inventory Status: During the May Day holiday period, cotton prices experienced a significant surge, and cotton yarn prices rose in tandem. However, downstream acceptance remained low, and a distinct atmosphere of a "slack season" prevailed; consequently, order volumes declined markedly. Yarn mills across the sector faced mounting pressure from finished goods inventories, with overall stock levels showing an increase compared to the previous period. According to statistics, as of May 7, the inventory of finished cotton yarn stood at 30.34 days' worth of stock—a month-on-month increase of 0.38%.

Regarding costs: Due to persistent drought conditions in major U.S. production regions during the May Day holiday—which sparked market concerns regarding supply—the Zhengzhou Cotton futures market opened with a gap-up upon the return from the holiday, driven by optimistic market sentiment, before subsequently retreating within a narrow range. However, as the downstream textile industry gradually enters its off-season and market trading activity slows, cotton prices are expected to fluctuate at elevated levels in the short term. According to statistics, the average processing fee for C32S combed ring-spun yarn stood at 4,093 during the week, representing a month-on-month increase of 2.00%; as of May 8, spinning margins in the domestic interior region were recorded at -1,291.13 RMB/ton—an improvement of 363.00 RMB/ton.

Regarding demand: Driven by a post-holiday surge in yarn prices, prices for standard downstream product categories have risen significantly, and inventories are running critically low. While there has been a high volume of inquiries for custom-woven varieties, actual orders remain scarce due to pricing concerns. Demand for standard product categories is robust; however, tight market inventories have led some suppliers to withhold stock or raise prices before releasing goods—factors that are significantly influencing market price volatility. During the May Day holiday, market operations were partially suspended, leading to a softening in weaving demand and a slight decline in the industry's overall operating rate. Furthermore, procurement activities—buffeted by frequent fluctuations in raw material prices—have largely shifted to a "buy-as-needed" strategy, with manufacturers strictly controlling their raw material inventories. According to statistics, as of May 7, the average operating rate for the domestic cotton spinning and weaving sector stood at 46.63%, representing a month-on-month decline of 0.39%.

Market Outlook:

Currently, yarn prices are elevated; coupled with the onset of the traditional off-season, demand is weakening, creating a risk of price corrections. However, the trajectory of cotton prices remains a key factor to monitor.

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