Domestic cotton prices experienced a surge and retreat in May, with the CCIndex 3128B hitting a two-and-a-half-year high of 18,211 yuan per ton early in the month before settling at a monthly average of 17,789 yuan. On the surface, this was a seasonal demand-driven correction, but underlying factors include progress in US-China trade talks, the implementation of Xinjiang's target price policy, and a globally loose supply-demand balance. For textile mills, this price volatility signals a need to recalibrate inventory strategies.
Demand Side: Seasonal Slowdown Meets Export Recovery
The slowdown in yarn output is the clearest demand signal. National Bureau of Statistics data shows May national yarn output at 1.869 million tons, up 2.7% year-on-year but down 1% month-on-month. Xinjiang's output grew 18.6% year-on-year but also fell 3.6% month-on-month, indicating weak downstream orders have reached production. The average price of 32-count pure cotton yarn was 23,277 yuan per ton, up 795 yuan month-on-month, but the increase lagged behind cotton spot prices, squeezing mill margins.
Exports showed structural recovery. Textile and apparel exports reached $25.6 billion in May, up 6.5% month-on-month, though still down 2.3% year-on-year. Exports to the US and EU grew 24.7% and 25.6% month-on-month respectively, signaling restocking demand. Exports to Belt and Road countries rose 9.7% month-on-month, while the zero-tariff policy for African countries opened new markets. However, cotton garment exports fell 3.7% year-on-year, indicating cotton products lag behind synthetic fiber exports.
Supply Side: Import Plunge and Inventory Paradox
Cotton imports dropped sharply to 113,000 tons in May, down 31.7% month-on-month. Brazilian cotton accounted for 57.7%, while US cotton rose to 22.1%. The direct cause is weak purchasing willingness—mills prefer to use existing stocks rather than buy at high prices. The deeper reason is the persistent domestic-foreign price gap: the Cotlook A Index averaged 92 cents per pound, equivalent to 15,518 yuan per ton after a 1% tariff, still 2,270 yuan below domestic prices, though the gap narrowed by 257 yuan from April.
Commercial inventory trends are more telling. At end-May, commercial 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. Commercial stocks exceeding last year's levels suggest the market is not short of cotton; rather, weak demand is slowing inventory digestion. Lower mill operating rates and cautious restocking confirm a wait-and-see attitude amid price uncertainty.
Planting Side: Area Decline and Seedling Concerns
National cotton sowing was 99.5% complete by end-May, but seedling conditions are worse than last year. Only 45.9% of surveyed farmers rated seedling conditions as better or equal to last year, down 34 percentage points. Continuous rainfall in inland regions caused waterlogging, slowing sowing in the Yangtze River Basin (6.9 percentage points behind) and the Yellow River Basin (1.4 points behind). Xinjiang completed sowing, but local heavy rains also affected seedling growth.
Poor seedling conditions imply lower yields. If weather does not improve, the 2026/27 crop could face downward revisions, contrasting with the USDA's optimistic global output forecast of 26.702 million tons. The global surplus may limit domestic price upside, but local supply risks could create volatility.
Policy and Market: Post-Target Price Expectations
The new round of Xinjiang's target price policy was announced in late May, briefly boosting market sentiment. However, the policy aims to stabilize grower incomes, not directly inflate prices. The China Cotton Association left its May supply-demand balance unchanged, indicating the policy's impact on fundamentals is not yet clear.
The 2026 China Cotton Development Summit in Chongqing, themed "Change and Reconstruction: Shaping a New Global Cotton Landscape," launched a cotton product origin evaluation initiative. For exporters, this represents both a compliance challenge and an opportunity for brand differentiation.