In May, domestic cotton prices first surged to a 2.5-year high before retreating. The CCIndex 3128B hit 18,211 yuan per ton on May 7, but subsequently declined as demand weakened. The monthly average stood at 17,789 yuan, up 23.1% year-on-year but only 3.6% month-on-month. This volatility reflects a tug-of-war between the off-season and policy expectations, with mills reluctant to build inventories despite the Xinjiang cotton target price policy providing a brief boost.
Off-Season Effects Ripple Through the Chain
Yarn output growth slowed as the first signal. National Bureau of Statistics data shows May yarn production at 1.869 million tons, up just 2.7% year-on-year and down 1% month-on-month. Xinjiang output grew 18.6% year-on-year but also fell 3.6% sequentially. Profit margins tightened: 32-count pure cotton yarn averaged 23,277 yuan per ton, up 795 yuan from April, but the increase lagged behind cotton price gains, squeezing mill profitability.
Cotton imports confirm this cautious stance. May imports were only 113,000 tons, plunging 31.7% month-on-month, though still up 2.3 times year-on-year. Mills adopted a hand-to-mouth procurement strategy, buying only on price dips. Brazilian cotton dominated at 57.7%, while US share rose to 22.1%, but overall import momentum slowed as order shortages cascaded from downstream to upstream.
Inventory Structure Reveals Supply-Demand Mismatch
By end-May, commercial cotton inventories stood at 3.745 million tons, down 13.3% month-on-month but up 8.3% year-on-year. Industrial inventories were 846,000 tons, down 3.5% monthly and 10.1% annually. The divergence—commercial stocks above last year, industrial stocks falling—indicates that high prices are driven by cost support and policy expectations, not genuine demand.
The domestic-international price gap narrowed. The Cotlook A index averaged 92 US cents per pound, translating to 15,518 yuan per ton after 1% tariff, 2,270 yuan below domestic prices—a 257 yuan reduction from April. This suggests global markets are recalibrating expectations for Chinese buying.
Seedling Conditions and Global Supply
China Cotton Association surveys show 99.5% of cotton planting completed, with Xinjiang fully done. However, inland regions suffered persistent rainfall, slowing the Yangtze River basin planting progress by 6.9 percentage points year-on-year. Only 45.9% of surveyed households rated seedling conditions as better or equal to last year, a 34 percentage point drop. Local waterlogging may reduce yields, but global supply remains ample.
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 at multi-year highs. Under a global supply glut, domestic production concerns alone cannot sustain price increases.
Export Recovery with Structural Shifts
Textile and apparel exports rose 6.5% month-on-month, with shipments to the US and EU up 24.7% and 25.6% respectively, and to Belt and Road countries up 9.7%. The US-China trade talks and zero-tariff policy for Africa drove this rebound. However, cotton garment exports fell 3.7% year-on-year, indicating synthetic substitution and consumer downgrading persist. The recovery reflects order reshoring and new market demand, not a full terminal recovery.
The 2026 China Cotton Industry Development Summit was held in Chongqing on May 28-29, themed "Change and Restructuring: Shaping a New Global Cotton Landscape." Nearly 400 attendees participated, and the event launched cotton product origin evaluation work—a sign the industry is moving from passive response to proactive standard-setting.