Cotton prices experienced a roller-coaster ride in May: surging to a two-and-a-half-year high early in the month before quickly retreating. Behind this was a fierce game between weak off-season demand and improved policy expectations, with subtle shifts in strategies across the textile chain.
Price Surge and Retreat: Pressure from Both Supply and Demand
On May 7, CCIndex 3128B hit 18,211 yuan per ton, the highest in nearly 30 months. But this peak did not last. As the textile industry entered its traditional off-season, new orders were insufficient, and mills adopted a cautious procurement strategy, buying only at dips. Prices gradually fell back. Although the implementation of a new round of Xinjiang cotton target price policy briefly boosted the market at the end of the month, prices ended with high volatility, with a monthly average of 17,789 yuan per ton, up 23.1% year-on-year and 3.6% month-on-month.
International cotton prices followed a similar pattern with slight differences. The Cotlook A index averaged 92 US cents per pound, up 18% year-on-year and 6.5% month-on-month. After including a 1% tariff, the price was 15,518 yuan per ton, 2,270 yuan lower than domestic prices, narrowing the spread by 257 yuan from last month. This indicates that domestic prices were relatively firm during the off-season, but the narrowing spread means the cost advantage of imported cotton is weakening.
For textile mills, the combination of high cotton prices and compressed profits is intensifying. The average price of 32-count pure cotton yarn in May was 23,277 yuan per ton, up 795 yuan month-on-month, but the increase was only 3.5%, far behind the 23.1% year-on-year rise in cotton. The inability of yarn prices to keep up highlights a cost transmission bottleneck that becomes particularly acute during the off-season.
Inventory Structure Changes: High Commercial Stocks, Declining Industrial Stocks
By the end of May, national commercial cotton inventories stood at 3.745 million tons, down 13.3% month-on-month but still up 8.3% year-on-year. Industrial inventories were 846,000 tons, down 3.5% month-on-month and 10.1% year-on-year. This contrast is stark: commercial inventories are higher than last year, indicating ample upstream supply; declining industrial inventories reflect mills' weak purchasing appetite, favoring a just-in-time procurement strategy.
This structural shift is also evident in import data. May cotton imports were 113,000 tons, down 31.7% month-on-month but still up 2.3 times year-on-year. The pace of foreign cotton procurement has clearly slowed. Brazilian cotton accounted for 57.7% of imports, while US cotton's share rose to 22.1%. Cumulative imports from January to May reached 825,000 tons, up 91% year-on-year, still at a high level, but the monthly decline is noteworthy.
From a global perspective, the USDA's May report raised the 2025/26 global cotton production estimate to 26.702 million tons, consumption to 26.156 million tons, and ending stocks to 16.823 million tons—all at recent highs. This means the global cotton market's ample supply is unlikely to change in the short term, and sustained domestic price increases would require stronger demand-side support.
Export Recovery but Profit Pressure: Mills Face a Dilemma
May textile and apparel exports were $25.6 billion, up 6.5% month-on-month but down 2.3% year-on-year, with the decline narrowing significantly from previous months. Cumulative exports from January to May were $116.73 billion, essentially flat with a slight 0.1% increase. The recovery was driven by phased progress in Sino-US trade consultations and the formal implementation of China's zero-tariff policy for African countries, with notable growth in European and American markets: exports to the US and EU grew 24.7% and 25.6% month-on-month, respectively.
However, the volume recovery did not translate into profit improvement. Cotton garment exports were $2.04 billion, down 3.7% year-on-year but up 11.9% month-on-month, suggesting falling unit prices as mills compete for orders through price cuts. Against a backdrop of high raw material costs, this strategy further squeezes margins.
Yarn production data confirms this pressure. May national yarn output was 1.869 million tons, up 2.7% year-on-year but down 1% month-on-month. Xinjiang yarn output was 319,000 tons, up 18.6% year-on-year but down 3.6% month-on-month. Slowing production growth, compressed profits, and export recovery with falling unit prices form a triple dilemma for textile mills.
New Cotton Growth Slower: Added Supply Uncertainty
By the end of May, national cotton planting progress was 99.5%, slightly behind last year. Inland cotton regions experienced persistent rainfall causing waterlogging, with the Yangtze River basin 6.9 percentage points behind and the Yellow River basin 1.4 points behind. Only 45.9% of surveyed farmers rated current seedling conditions as better than or equal to last year, a 34-percentage-point drop, indicating overall poorer seedling conditions.
This adds uncertainty to the 2026/27 cotton supply. If seedling conditions continue to deteriorate, yields could be affected, supporting forward prices. But with high global inventories and increased domestic commercial stocks, short-term supply pressure is limited. The real concern is whether reduced new-crop expectations, combined with post-off-season demand recovery, could trigger a new round of price volatility in Q4.