Domestic cotton prices traced a parabolic path in May: hitting a 2.5-year high of 18,211 yuan/ton in early May, only to retreat to a monthly average of 17,789 yuan/ton by month-end. This volatility reflected a tug-of-war between policy optimism and off-season realities, with a clear transmission chain from macro expectations to weak end-demand and cautious procurement.
Background
The first inflection point came on May 7. Progress in China-U.S. trade talks and the implementation of a new Xinjiang cotton target price policy boosted market sentiment. Amid expectations of tight new-crop supply, mills rushed to replenish, pushing the CCIndex 3128B to 18,211 yuan/ton. But the peak didn't last. As the textile sector entered its traditional off-season, new orders dwindled, production slowed, and mills shifted to conservative 'buy-on-dip' strategies.
On the export front, narrowing tariff advantages with Southeast Asia and a zero-tariff policy for African countries supported order recovery. Customs data shows textile and apparel exports reached $25.6 billion in May, up 6.5% month-on-month, with exports to the U.S. and EU growing 24.7% and 25.6% respectively. However, year-on-year decline of 2.3% indicates the recovery hasn't offset overall demand weakness.
Industry Impact
On the production side, May yarn output was 1.869 million tons, up 2.7% year-on-year but down 1% month-on-month. Xinjiang's output of 319,000 tons grew 18.6% year-on-year but fell 3.6% month-on-month. The slowdown reflects squeezed margins: 32s pure cotton yarn averaged 23,277 yuan/ton, up 795 yuan from April, but the gain lagged cotton price increases, pressuring mill profitability.
Cotton imports mirrored the off-season effect. May imports were just 113,000 tons, plunging 31.7% month-on-month. Brazilian cotton accounted for 57.7%, while U.S. cotton's share rose to 22.1%. Cumulative imports from January to May reached 825,000 tons, up 91% year-on-year, but the sharp monthly drop shows mills' import appetite cooling with order contraction.
Inventory data reveals a delicate balance. By end-May, commercial cotton stocks stood at 3.745 million tons, down 13.3% month-on-month but up 8.3% year-on-year. Industrial stocks were 846,000 tons, down 3.5% month-on-month and 10.1% year-on-year. Higher commercial stocks suggest adequate supply, while falling industrial stocks indicate mills' reluctance to pay high prices amid profit pressure and rising finished goods inventories.
The narrowing domestic-international price spread further illustrates market independence. The Cotlook A index averaged 92 US cents/lb in May, equivalent to 15,518 yuan/ton after 1% tariff, 2,270 yuan below domestic prices. The spread narrowed by 257 yuan from April. International prices were pressured by a strong dollar and weak U.S. export performance, while domestic prices remained relatively high despite the correction.