In May 2026, cotton prices hit a two-and-a-half-year high before retreating sharply, with intra-month volatility exceeding 1,000 yuan per ton. This was not a simple seasonal fluctuation but the result of three forces converging: weak off-season demand, revised policy expectations, and ample global supply. For textile mills, the risks of buying at highs and opportunities for bargain restocking coexist, signaling a shift from active inventory building to passive destocking.
Supply-Demand Balance Tilts: Off-Season Effects and Inventory Structure
The slowdown in yarn output growth is the clearest signal of weakening demand. National Bureau of Statistics data shows May yarn production fell 1% month-on-month to 1.869 million tons, with Xinjiang output dropping 3.6% month-on-month. Although year-on-year growth remained at 2.7%, the pace slowed markedly from April. The average price of 32-count pure cotton yarn rose 795 yuan per ton month-on-month to 23,277 yuan, but the increase was only half of cotton's price gain, squeezing mill margins. Downstream buyers are increasingly unwilling to accept high cotton prices, shifting procurement strategies from active restocking to opportunistic small purchases.
Cotton import data confirms this cooling appetite. May imports totaled just 113,000 tons, a 31.7% month-on-month plunge. Brazilian cotton still dominated with a 57.7% share, while US cotton's share recovered to 22.1%, but the overall decline reflects cautious views on forward orders. Commercial inventories stood at 3.745 million tons, down 13.3% month-on-month but still 8.3% higher than last year, indicating slower-than-expected destocking. Industrial inventories fell 3.5% month-on-month to 846,000 tons, down 10.1% year-on-year, as mills reduced raw material holdings.
Price Dynamics: Narrowing Spread and Cost Pass-Through Dilemma
Domestic cotton hit a high of 18,211 yuan per ton on May 7 before retreating, with the monthly average at 17,789 yuan, up 23.1% year-on-year but with a narrowing gain from April. Meanwhile, the Cotlook A index averaged 92 US cents per pound, equivalent to 15,518 yuan per ton after 1% tariff, leaving a spread of 2,270 yuan, narrowing 257 yuan from April. The narrowing spread reduces the cost advantage of imported cotton, but domestic prices remain elevated, putting mills in a bind between high raw material costs and rising finished goods inventories.
The USDA May report raised 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. The ample global supply sets a ceiling for international prices. Domestic prices, supported by Xinjiang's target price policy, have limited downside. A post-policy bounce proved short-lived, suggesting that policy support is being diluted by weak off-season demand.
Seedling Divergence: Uncertainty in New Crop Yields
As of end-May, national cotton planting progress stood at 99.5%, slightly behind last year. Xinjiang has completed planting, but persistent rains in inland cotton regions have delayed progress: the Yellow River region is 1.4 percentage points behind, and the Yangtze River region 6.9 points behind. Only 45.9% of surveyed farmers rated seedling conditions better than last year, down 34 percentage points; 76.8% reported mild disease pressure, down 3.2 points. Localized waterlogging and seedling divergence suggest output variability, with inland regions facing higher production risks.
Xinjiang's seedlings are relatively stable, but the overall national condition is worse than last year, potentially lowering yield expectations. If weather does not improve, new crop supply may fall short of market estimates, providing a floor for prices after the off-season ends.
Structural Opportunities in Export Recovery
Textile and apparel exports rose 6.5% month-on-month in May, with shipments to the US and EU surging 24.7% and 25.6% respectively. The phased progress in US-China trade talks and the zero-tariff policy for African countries have driven order repatriation. Cotton garment exports rose 11.9% month-on-month but fell 3.7% year-on-year, indicating growth came mainly from non-cotton categories. The export recovery provides limited direct support to cotton prices but helps ease downstream inventory pressure.