China's cotton market experienced a sharp rally followed by a retreat in May. Domestic spot prices hit a 2.5-year high of 18,211 yuan/ton on May 7 before declining under the weight of off-season demand weakness and external market pressures. The monthly average settled at 17,789 yuan/ton, still up 23.1% year-on-year. But the more telling signal is the standoff between upstream and downstream: mills are resisting high prices, imports have plunged, and commercial inventories remain above last year's levels. This analysis breaks down the underlying dynamics.
Supply Side: Seeding Completed but Seedling Conditions Worsen
By the end of May, national cotton seeding had reached 99.5%, with Xinjiang fully planted. However, the Yellow River and Yangtze River regions lagged by 1.4 and 6.9 percentage points respectively due to persistent rainfall and waterlogging. Only 85.5% of cotton fields had reached the 4-8 true leaf stage, down 8.9 percentage points from last year. The share of farmers rating seedling conditions as better than last year dropped 34 percentage points to just 45.9%. This points to a potential downward revision in 2026/27 production expectations, but the market remains cautious because commercial inventories are still high.
Commercial cotton inventories stood at 3.745 million tons at end-May, up 8.3% year-on-year, while industrial inventories fell 10.1% to 846,000 tons. Mills are actively destocking raw materials, unwilling to hold inventory at elevated prices. This mismatch—upstream pressure to sell, downstream reluctance to buy—is the fundamental reason why prices cannot sustain a rally.
Demand Side: Off-Season and Margin Squeeze Shift Mill Behavior
Yarn output in May reached 1.869 million tons, up 2.7% year-on-year but down 1% month-on-month. Xinjiang's yarn output was 319,000 tons, up 18.6% year-on-year but down 3.6% month-on-month. The average price of 32-count pure cotton yarn was 23,277 yuan/ton, up 795 yuan month-on-month and 2,811 yuan year-on-year, but the increase lagged behind cotton prices, compressing mill margins. Mills responded by shifting from bulk restocking to small, opportunistic purchases, and operating rates declined.
On the export front, textile and apparel exports totaled $25.6 billion in May, down 2.3% year-on-year but up 6.5% month-on-month. Exports to the U.S. and EU grew 24.7% and 25.6% month-on-month, reflecting progress in Sino-U.S. trade talks and the impact of zero-tariff policies for African nations. However, cotton garment exports fell 3.7% year-on-year, indicating that cotton products continue to lose share in the export mix amid competition from synthetic fibers and Southeast Asian suppliers.
Imports and Policy: Import Plunge Reflects Narrowing Price Spread
May cotton imports were 113,000 tons, down 31.7% month-on-month but still up 2.3 times year-on-year. Brazilian cotton accounted for 57.7% of imports, while U.S. cotton's share rose to 22.1%. The sharp monthly decline was driven by a narrowing domestic-international price spread: the Cotlook A index, after adding 1% tariff, stood at 15,518 yuan/ton, 2,270 yuan below domestic prices—a spread reduction of 257 yuan from April. This reduced the cost advantage of imported cotton, prompting mills to favor domestic stocks or wait on the sidelines.
The new round of Xinjiang cotton target price policy, announced in late May, briefly lifted sentiment but had limited practical impact. The policy primarily stabilizes farmer expectations and does not directly alter short-term supply-demand balances. The China Cotton Association left its supply-demand table unchanged this month, confirming that the policy did not shift the industry's fundamental outlook.
Industry Event: Chongqing Forum Highlights Consensus on Restructuring
On May 28-29, the 2026 China Cotton Industry Development Summit Forum was held in Chongqing under the theme "Transformation and Restructuring: Shaping a New Global Cotton Landscape." Nearly 400 delegates from government, international organizations, and textile and brand companies attended. The launch of a cotton product origin evaluation initiative is particularly noteworthy: it could influence trade flows and brand procurement preferences, especially amid ongoing Sino-U.S. trade frictions where origin traceability is becoming a compliance necessity.
Outlook: High-Level Consolidation Likely; Watch New Crop Yields
In the near term, cotton prices lack catalysts for a directional breakout. Off-season demand remains weak, mill finished goods inventories are accumulating, and raw material procurement is cautious. Commercial stocks are above last year's levels, and despite the monthly import decline, absolute import volumes remain high. The new crop production outlook is clouded by poor seedling conditions, but weather variability over the next few months leaves considerable uncertainty.
Three variables to watch: first, actual new crop yield realization—whether poor seedling conditions translate into production losses; second, the trajectory of Sino-U.S. trade negotiations, which will directly impact cotton garment exports and cotton imports; third, the evolution of the domestic-international price spread—if it narrows further or inverts, imported cotton will lose appeal, potentially supporting domestic prices.