Amid expectations of a decline in cotton planting area in Xinjiang for 2026/27 crop year and a tight domestic supply-demand balance, coupled with positive factors including improved China-US economic and trade relations, accommodative monetary conditions and a synchronized commodity cycle, cotton market sentiment has turned notably optimistic since the market reopened on the 8th day of the first lunar month, with strong capital buying interest. ZCE cotton futures broke through the 15,500yuan/mt mark during intraday trading yesterday, peaking at 15,665yuan/mt (a new high since the end of Apr, 2024), representing an increase of 925yuan/mt from the pre-holiday close of 14,740yuan/mt. Spot cotton prices approached the 17,000yuan/mt threshold, with a nearly 1,000yuan/mt increase in just three days, well above market expectations. Post-holiday cottonseed prices extended their pre-holiday rally, with Xinjiang cottonseed prices rising to around 2,500yuan/mt (slightly higher in the south and lower in the north).

Currently, Xinjiang-based ginners have completed more than 90% of seed cotton processing. Incremental available cottonseed supplies are limited, with cargo rights concentrated in the hands of traders, oil and delinting plants, leaving cottonseed prices prone to rises and resistant to declines. Cotton linter prices have also moved higher, with gains ranging within 50-100yuan/mt. On the one hand, the continuous rally in cotton and cottonseed prices has boosted market confidence in cotton linter. However, around the 8th day of the first lunar month, downstream refined cotton mills were still in the process of resuming work and production, with overall demand yet to fully recover, leading to cautious market sentiment. On the other hand, dissolving pulp and paper pulp prices remain relatively low. Despite some bullish expectations, market views are divided and a strong consensus has not yet been formed.

In summary, the combination of favorable macro factors and tight domestic fundamentals has supported the cotton market rally. Given the high participation of long capital, cotton market maintains a positive medium-to-long-term outlook. However, the rapid and stronger-than-expected gains in ZCE cotton futures and spot cotton prices in the short term have brought about periodic pressure for consolidation or digestion. With ginning progress exceeding 90% in Xinjiang and limited incremental cottonseed supplies, cottonseed prices are likely to remain firm with limited downside. Cotton linter prices have moved higher and are expected to stay steady with a slight upward bias.