May is typically a transitional month from the peak spring season to the slow summer period in the textile industry, but this year's market volatility exceeded most expectations. Domestic cotton prices hit a two-and-a-half-year high early in the month before rapidly retreating, ending in high-level volatility despite a late-month rebound. Behind this lies a tug-of-war between weak new orders, cautious inventory restocking, policy expectations, and tight supply.
Ebbing Demand: Order Shortages and Inventory Pressure
National Bureau of Statistics data shows May yarn output at 1.869 million tons, down 1% month-on-month and up only 2.7% year-on-year. The slowing growth confirms the industry's entry into the traditional off-season. More notably, cotton yarn price increases lagged behind cotton—pure cotton 32s yarn averaged a 3.5% month-on-month rise, while domestic spot cotton prices rose 3.6%, failing to widen the margin. This means textile mills' profit margins are being squeezed, with some facing the awkward situation of 'flour costing more than bread.'
Purchasing behavior turned conservative. Industrial cotton inventories fell to 846,000 tons in May, down 3.5% month-on-month and 10.1% year-on-year, reflecting mills' resistance to high cotton prices. Meanwhile, commercial inventories reached 3.745 million tons, up 8.3% year-on-year, indicating upstream inventory pressure is shifting downstream. This 'industrial de-stocking, commercial stockpiling' structure often signals insufficient downstream demand absorption.
Import Plunge and Narrowing Price Gap
Customs data reveals another clue: May cotton imports were only 113,000 tons, a sharp 31.7% month-on-month drop. Although still up 2.3 times year-on-year, the large monthly decline shows that in the off-season, companies' willingness to buy imported cotton weakened significantly. Brazilian cotton still dominated with a 57.7% share, while US cotton's share rose to 22.1%, reflecting shifts in global trade flows.
The domestic-international cotton price gap also narrowed. The monthly average Cotlook A index, after 1% tariff, was 15,518 yuan/ton, 2,270 yuan lower than domestic prices, with the gap narrowing by 257 yuan from the previous month. This means the price advantage of imported cotton is weakening, reducing its support for domestic prices. From an industry chain perspective, a narrower gap helps reduce import substitution's impact on domestic cotton but also means domestic prices need stronger internal demand for support.
Supply Side: Policy Support and Seedling Concerns
In late May, the new round of Xinjiang cotton target price policy was implemented, briefly boosting market sentiment. This policy provides a price guarantee floor for farmers, helping stabilize planting expectations. However, the policy's impact was largely short-term sentiment-driven and failed to reverse the fundamental weakness in demand.
Seedling data adds uncertainty to the supply side. By end-May, only 45.9% of surveyed households considered seedling conditions better or equal to last year, a 34 percentage point drop year-on-year. Continuous rainfall in inland cotton areas caused waterlogging, delaying seedling growth. The Yangtze River basin's planting progress lagged 6.9 percentage points year-on-year. If weather doesn't improve, new crop yields may face downward pressure, supporting supply in the medium to long term.
Global Perspective: High Production and Inventories
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 three are at multi-year highs, indicating a generally loose global supply-demand balance. For domestic textile mills, ample foreign cotton supply remains a key force suppressing cotton price upside in the long run.