Market Observation: Cotton Prices Are Expected To Show A Slow Recovery Trend According To The Recent Favorable Tariff And Other Policies

In April, the United States implemented a more than expected "tariff parity" policy, which triggered turbulence in the global economy and financial markets, and had a significant impact on the cotton market. The domestic cotton price fell significantly. In May, driven by the favorable domestic macro policies, the progress made in China US trade negotiations and the tariff cut, cotton prices showed a low rebound trend. On May 14, the average price of China's 3128B lint was 14030.50 yuan/ton, up 498.50 yuan/ton or 3.68% from April 30.

Substantive progress was made in the Sino US trade negotiations and market risks were improved. On May 10-11, the Sino US high-level economic and trade talks made substantial progress and significantly reduced bilateral tariffs. Both China and the United States will suspend the implementation of 24% of the "equivalent tariff" in the next 90 days. From May 14, the new tariff imposed by the United States on China will be reduced to 30% (including 20% fentanyl tariff) in the next 90 days, China's new tariffs on the United States were reduced to 20-25%. In this trade consultation, tariffs fell more than expected, market risk appetite continued to recover, and cotton prices, which were significantly impacted by tariff increases in the early stage, bottomed out and rebounded.

The export cost is reduced, and the export of end products is expected to be repaired periodically. The United States has an important share in China's textile and clothing export market. In 2024, China's total textile and clothing exports to the United States will reach 50.96 billion dollars, accounting for 16.9% of the industry's total exports. Since the escalation of the tariff contradiction between China and the United States in April, China's exports to the United States have declined, which is reflected in the reduction of downstream orders, the decline of commencement, and the monitoring of Zhuozhuang Information. At the end of April, the commencement load of Shandong cotton textile enterprises dropped to 64.38%, down 6 percentage points from the end of March. However, the tariff made substantial progress on May 12, which will reduce the export cost of downstream enterprises. In addition, the market confidence is restored, and downstream enterprises are expected to usher in order repair, driving cotton demand to recover.

The decline of cotton import volume and the reduction of supply pressure support the price. From the supply side, the cotton import volume in 2024/25 continued to be low year-on-year. In March 2025, China imported only 73700 tons of cotton, a year-on-year decrease of 81.42%. As of March, the cumulative import volume of cotton in 2024/25 (2024.9-2025.3) was only 804800 tons, compared with 2129200 tons imported in the same period of the previous year, The year-on-year decrease was 1324400 tons, or 62.20%. The monthly import volume of cotton in this year continued to be low on a year-on-year basis, leading to an accelerated pace of cotton destocking. At the end of 2024/25, the inventory may usher in a high decline, which will support the price.

The macro atmosphere has warmed up, the supply and demand relationship has improved, and the cotton price trend is expected to be strong. With the substantial reduction of tariffs between China and the United States and the formal promotion of trade negotiations, the macro atmosphere has warmed up, and within 90 days of the suspension of the implementation of equivalent tariffs, the cost of textile and clothing tariffs exported to the United States has eased, and the superimposed confidence has rebounded, cotton demand is expected to usher in demand repair. The supply side will speed up the pace of de stocking on the basis of the continuous decline of import volume, and the supply and demand relationship will gradually improve. It is expected that the cotton price trend will be stronger. However, the downstream will enter the seasonal demand slack season, which will limit the rebound space of cotton prices. It is expected that cotton prices will show a slow upward trend in the next three months. In addition, we need to pay attention to the impact of subsequent tariff policy changes.