After the May Day holiday (May 1-5), downstream domestic orders recover slightly, and some export orders appear. Trading volumes of spot cotton increase on the first day after returning from the holiday. However, the orders have not recovered to a level that mills can be active to replenish feedstock, and cotton textile industrial chain still operates weakly. Besides, cotton sales weaken after ZCE cotton futures market moves up. Therefore, the overall cotton sales remain not good, and ZCE cotton futures market faces large pressure to go up.

1. China cotton supply and demand
By end Apr, cotton arrivals total 5.2536 million tons in 2019/20 season, a fall of 1.5% year on year. In addition, China purchases more US cotton recently. For the week ending Apr 23, export sales of US cotton to China reached 95.8kt, and in the next week, the export sales were 50kt. In general, Chinese cotton market supply is sufficient. Besides, the open interests of ZCE May contract are 300kt, far higher than the corresponding period of previous years. Meanwhile, the trash of many warehouse receipts is high, and the cotton is hard to be sold.

As Zhengzhou cotton futures market opened low and shivered at low level on May 6 after returning from the holiday, cotton market sales were active, and mills mainly procured for rigid demand. Later, ZCE cotton futures market has been constantly increasing, and downstream demand for cotton continues to lower, and mills mainly hold bearish anticipation. Besides, with higher ZCE cotton, price edge of cotton at fixed price is seen, but the purchasing volumes remain limited at present.

2. Cotton inventory in mills and O/R of spinning mills

Currently, new orders of cotton yarn are less than that in Apr, and cotton inventory in mills declines slightly. Different from previous years, the decline of cotton inventory this year is mainly attributed to the pessimistic mood of mills towards current cotton market, and also the bleak cotton yarn sales and accumulating product inventory. Therefore, mills continue to purchase feedstock cautiously.

After the holiday, operating rate of spinning mills recovers slightly, but is basically flat overall. Meanwhile, cotton yarn inventory is piling up, to 31 days, a high level since 2016. According to survey, domestic orders are mostly flat after the holiday, and a few mills see export orders, but only a few mills have export orders, which has limited influence on the whole cotton textile market.

3. Conclusion
Market sentiment improves slightly currently, but the overall demand declines evidently year on year. Downstream mills see inadequate orders and keep cautious to replenish feedstock. Under the oversupplied situation, cotton market is expected to be range-bound weakly, and prices are hard to go up.