May's cotton market resembled a forced rollercoaster—hitting a two-and-a-half-year high at the start, then falling back into a volatile range by month-end. On the surface, it was a tug of war between weak off-season demand and policy support, but the deeper issue is a structural mismatch in profit distribution across the supply chain.
The Supply-Demand Mismatch Behind the Price Spike
On May 7, the domestic cotton spot price CCIndex 3128B surged to 18,211 yuan/ton, a two-and-a-half-year high. This signal did not come from strong downstream demand, but from a combination of short-term factors: tight new-crop supply expectations, concentrated mill restocking, and sentiment premium from progress in China-US trade talks. Sentiment, however, always returns to fundamentals.
The monthly average domestic spot price was 17,789 yuan/ton, up 23.1% year-on-year and 3.6% month-on-month. Meanwhile, the Cotlook A index averaged 92 cents/lb, equivalent to 15,518 yuan/ton after 1% tariff. The domestic-foreign price gap narrowed by 257 yuan from the previous month but still stood at 2,270 yuan/ton. This means domestic cotton remains uncompetitive internationally, with imported cotton offering clear cost advantages.
Full Transmission of the Off-Season Effect: From Output to Inventories
National Bureau of Statistics data shows May yarn output at 1.869 million tons, up only 2.7% year-on-year and 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 yarn growth directly reflects insufficient new orders. The average price of 32s pure cotton yarn was 23,277 yuan/ton, up 795 yuan or 3.5% month-on-month, far below the 23.1% year-on-year increase in cotton spot prices. Yarn prices lagged, squeezing mill margins.
This profit pressure transmitted directly to raw material procurement. May cotton imports were only 113,000 tons, plunging 31.7% month-on-month, though still up 2.3 times year-on-year. Commercial inventories stood at 3.745 million tons, down 13.3% month-on-month but still 8.3% higher year-on-year; industrial inventories were 846,000 tons, down 3.5% month-on-month and 10.1% year-on-year. The inventory structure shows mills are not unwilling to restock, but are reluctant to buy at current high prices, preferring to consume existing stocks.
Export Recovery: Structural Bright Spots and Concerns
May textile and apparel exports totaled $25.6 billion, up 6.5% month-on-month but down 2.3% year-on-year. January-May cumulative exports were $116.73 billion, up 0.1% year-on-year. The month-on-month improvement was driven by two factors: progress in China-US trade talks boosted US and EU orders, with exports to those regions up 24.7% and 25.6% month-on-month respectively; and the zero-tariff policy for African countries released demand from emerging markets.
However, cotton garment exports were $2.04 billion, still down 3.7% year-on-year, indicating that pure cotton products are not recovering as fast. The US and EU growth came more from synthetic or blended products. Exports to Belt and Road countries rose 9.7% month-on-month, but sustainability depends on local consumption power and exchange rate stability.
Seedling Conditions and Area: Potential Supply-Side Risks
By end-May, national cotton planting progress was 99.5%, slightly behind last year. The Yellow River basin was at 95.6% and the Yangtze River basin at 99.3%, 1.4 and 6.9 percentage points slower respectively. Persistent rainfall in inland areas caused waterlogging, delaying seedling growth. Nationwide, 85.5% of cotton was at the 4-8 true leaf stage, down 8.9 percentage points year-on-year. Only 45.9% of surveyed households rated seedling conditions as better or equal to last year, a sharp 34 percentage point drop.
Weaker seedlings imply lower potential yields. Combined with a slight reduction in planted area, supply elasticity is further compressed. If adverse weather continues, new-crop supply could fall below expectations, supporting prices. However, the China Cotton Association did not adjust its supply-demand balance this month, indicating cautious official assessment.
Policy Variables: Target Price Implementation and Global Restructuring
On May 28-29, the 2026 China Cotton Industry Development Summit was held in Chongqing, themed "Change and Reconstruction: Shaping a New Global Cotton Landscape." The event launched origin evaluation for cotton products, signaling the industry's shift from quantity to quality. The new Xinjiang cotton target price policy provides a price floor for farmers, but also means domestic prices are unlikely to fall far below the policy anchor.
The USDA May report raised 2025/26 global cotton production to 26.702 million tons, consumption to 26.156 million tons, and ending stocks to 16.823 million tons—all near historical highs. In a globally loose supply-demand environment, domestic prices are propped up by policy while international prices are suppressed by stocks, suggesting the domestic-foreign price gap may persist.