Domestic cotton prices hit a 2.5-year high in early May before retreating sharply, as off-season demand contraction, policy expectation adjustments, and external market pressures converged. Yarn output growth slowed to 2.7%, mill profitability narrowed, and the industry entered a phase of active destocking.
Supply and Demand Both Cool
May national yarn output reached 1.869 million tons, down 1% month-on-month. Xinjiang produced 319,000 tons, down 3.6% from April. Although year-on-year growth remained positive, the sequential decline signals mills are proactively controlling production. The average price of 32s pure cotton yarn rose 795 yuan/ton to 23,277 yuan/ton, but the increase lagged behind cotton prices, squeezing spinning margins and discouraging restocking.
Cotton imports fell sharply to 113,000 tons in May, down 31.7% month-on-month, the lowest monthly level this year. Brazilian cotton accounted for 57.7%, while U.S. cotton's share rose to 22.1%. Cumulative imports from January to May reached 825,000 tons, up 91% year-on-year, but the growth rate has clearly slowed.
Inventory Structure Reveals Market Sentiment
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% month-on-month and 10.1% year-on-year. The contrast between high commercial stocks and low industrial stocks suggests that intermediate trade inventories have not effectively passed through to downstream mills, which prefer hand-to-mouth purchasing.
This 'high commercial, low industrial' structure is typical in the off-season, but combined with falling operating rates and rising finished product inventories, it indicates deep divergence on future price direction. Upstream hopes for higher prices, downstream fears them, and the key battleground is whether new orders materialize in June-July.
Narrowing Domestic-Foreign Spread Creates New Dynamics
The CCIndex 3128B hit an 2.5-year high of 18,211 yuan/ton on May 7 before retreating, ending the month at an average of 17,789 yuan/ton, up 23.1% year-on-year. The Cotlook A index averaged 92 US cents/lb, which after 1% tariff converts to 15,518 yuan/ton, a discount of 2,270 yuan versus domestic prices, narrowing by 257 yuan from April. A narrower spread means imported cotton's cost advantage is weakening, which may support domestic prices in the short term but also caps further upside.
The USDA's May report raised global 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 global supply glut remains intact, pressuring international prices.
Policy Support Meets Weather Disruptions
The new round of Xinjiang cotton target price policy landed in late May, briefly boosting market sentiment. But whether policy dividends translate into real demand depends on downstream order recovery. Nationwide cotton planting progress reached 99.5%, with Xinjiang fully completed. However, persistent rainfall in inland cotton areas caused waterlogging, resulting in seedling conditions worse than last year. Only 45.9% of surveyed households rated seedling conditions as better or equal to last year, down 34 percentage points year-on-year, potentially affecting new crop yield expectations.
The 2026 China Cotton Industry Development Summit Forum held in Chongqing in late May attracted nearly 400 participants. The launch of a cotton product origin evaluation initiative signals the industry is shifting from pure price competition to quality and traceability, strategically important for long-term export competitiveness.