In May 2026, domestic cotton prices in China hit a 2.5-year high before retreating, ending the month in high-level volatility. This movement is not merely seasonal but the result of intertwined factors: weak off-season demand, policy expectations, and ample global supply. For textile mills, the roller-coaster raw material prices are intensifying the challenge of margin management.
Demand Weakens and Inventories Diverge
As the textile industry entered the traditional off-season in May, new orders were notably insufficient. National Bureau of Statistics data show national yarn output at 1.869 million tons, down 1% month-on-month, with Xinjiang's output falling 3.6%. More telling is the profit side: although the average price of 32s pure cotton yarn rose 795 yuan/ton to 23,277 yuan/ton month-on-month, the increase was far below the 3.6% rise in cotton spot prices, squeezing mill margins.
Inventory data further confirms the divergence along the chain. By end-May, commercial cotton inventory stood at 3.745 million tons, down 13.3% month-on-month but still 8.3% higher year-on-year. In contrast, industrial cotton inventory at 846,000 tons fell both month-on-month and year-on-year, the latter by 10.1%. This suggests mills are actively destocking, unwilling to carry high-cost inventory, and adopting a cautious, hand-to-mouth procurement strategy.
Import Drop Amid Global Glut
May cotton imports plunged 31.7% month-on-month to just 113,000 tons. Though still up 2.3 times year-on-year, the sharp monthly decline reflects mills' waning appetite for foreign cotton. Among import sources, Brazilian cotton accounted for 57.7%, while US cotton's share rose to 22.1%, indicating ongoing supply chain adjustments.
The USDA's 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. The global supply-demand balance remains loose, and the domestic import drop is more a timing mismatch than a structural shift.
Poor Seedling Growth and Policy Support
By end-May, national cotton planting progress reached 99.5%, essentially complete. However, seedling conditions are worrying. According to the China Cotton Association survey, only 45.9% of respondents rated seedling growth as better or equal to last year, down 34 percentage points. Persistent rainfall in inland cotton regions caused waterlogging, stunting growth. The proportion of cotton fields with 4-8 true leaves fell 8.9 percentage points year-on-year, adding uncertainty to second-half output.
Meanwhile, at the 2026 China Cotton Development Summit held in Chongqing on May 28-29, the new Xinjiang target price policy was confirmed, and a cotton product origin evaluation system was launched. These policies signal long-term support for Xinjiang production and market transparency, providing a floor for price expectations but unlikely to reverse near-term weak demand.
Narrowing Price Gap and Export Recovery
Domestic cotton spot price averaged 17,789 yuan/ton in May, up 23.1% year-on-year and 3.6% month-on-month. The international Cotlook A index averaged 92 US cents/lb, which after 1% tariff was 2,270 yuan/ton below domestic prices—a narrowing gap of 257 yuan from April. This reduced import advantage partly explains the import decline.
On exports, progress in US-China trade talks and zero-tariff policy for African countries helped textile and apparel exports reach $25.6 billion in May, up 6.5% month-on-month. Exports to the US and EU grew 24.7% and 25.6% month-on-month respectively. However, cotton-made garment exports fell 3.7% year-on-year to $2.04 billion, indicating cotton's shrinking share in export mix.
Industry Impact and H2 Outlook
The core contradiction in the current cotton market: domestic prices remain high due to policy expectations and limited supply, while weak downstream demand and ample global supply exert downward pressure. Mills face a scissors gap between expensive raw materials and hard-to-raise finished product prices, likely leading to continued capacity cuts and inventory buildup.
Three key variables for H2: actual yield in Xinjiang given delayed seedling growth; the trajectory of US-China trade relations, especially tariff impacts on order repatriation; and whether high global ending stocks pull international prices lower, widening the domestic-foreign spread again.