Cotton market sentiment in May swung from euphoria to caution at a rapid pace. The China Cotton Price Index (CCIndex) averaged 17,789 yuan/ton, up 613 yuan month-on-month and a staggering 3,344 yuan year-on-year. But after hitting a 2.5-year high of 18,211 yuan/ton on May 7, prices fell back to 17,400 yuan/ton mid-month before stabilizing above 17,600 yuan/ton on policy signals. This rollercoaster reflects a concentrated release of bullish and bearish factors during the traditional weaving off-season.
Domestic Resilience: From Supply Tightness to Policy Support
The initial price surge was driven by supply-side constraints. Expectations of tight new-crop supply, combined with post-holiday mill restocking, pushed spot prices to the 2.5-year peak. However, as the weaving season entered its traditional lull, terminal orders dropped, weakening demand and reversing the price trend.
Late in the month, the announcement of a new Xinjiang cotton target price policy stabilized market expectations. Mills took advantage of the lower prices to restock, lifting prices back above 17,600 yuan/ton. This shows that policy remains a key anchor for domestic cotton prices during periods of weak demand. Notably, the futures-spot spread narrowed by 148 yuan/ton to 1,525 yuan/ton, indicating more rational market pricing.
International Markets: Sharp Volatility on Converging Headwinds
International cotton prices underperformed domestic ones, with significantly higher volatility. The ICE cotton futures main contract fell from near 89 cents/lb to 79.51 cents/lb by month-end, averaging 82.23 cents/lb for the month, up 4.84 cents/lb month-on-month but down at the end.
Converging bearish factors were to blame: weakening terminal demand, improved weather in US growing regions, a stronger US dollar, and persistently poor US cotton export sales data. Profit-taking by speculators accelerated the decline. The China Import Cotton Price Index (FCIndex M) ended the month at 89.36 cents/lb, equivalent to 15,074 yuan/ton under 1% tariff, which was 2,561 yuan/ton below the domestic CCIndex. The domestic-international price spread narrowed by 14 yuan but remained wide in absolute terms, reducing the cost advantage of imported cotton.
Industry Transmission: Yarn Prices Rise but End-Users Resist
The weaving off-season fully materialized in May. Mill operating rates edged down, new orders were insufficient, and cotton yarn sales slowed. Structurally, 40S compact yarn and some blended/differentiated products performed steadily, while carded yarn was weaker. Some small and medium mills saw finished goods inventories accumulate.
Cotton yarn prices rose modestly with cotton; 32s carded yarn averaged 23,277 yuan/ton, up 796 yuan or 3.54% month-on-month. However, the year-on-year increase of 13.74% was far below cotton's 23.15%, indicating poor price transmission downstream. Polyester staple fiber ended the month at 7,775 yuan/ton, down 595 yuan, while viscose staple fiber was at 14,100 yuan/ton, up 300 yuan, reflecting divergent trends among chemical fibers.