China's cotton market in May experienced a brief surge followed by a sharp correction, as the implementation of the Xinjiang cotton target price policy was quickly overshadowed by the textile industry's seasonal downturn. The tug-of-war between supply and demand left clear marks on the monthly data.
Policy Support vs. Seasonal Weakness
The new Xinjiang cotton target price policy, announced in late May, briefly lifted domestic prices. However, its impact was more on expectations than actual demand. The textile sector entered its traditional off-season in May, with new orders falling short. Yarn output grew only 2.7% year-on-year and fell 1% month-on-month. While 32-count pure cotton yarn averaged 23,277 yuan/ton, up 795 yuan from April, the increase lagged behind cotton prices, squeezing mill margins.
Procurement turned cautious. Mills replenished only on dips, pushing industrial cotton inventories down 3.5% month-on-month to 846,000 tons, 10.1% lower than a year ago. Commercial stocks, while down 13.3% from April, stood at 3.745 million tons, still 8.3% above the same period last year, indicating sluggish market absorption.
Export Recovery with Structural Divergence
Progress in US-China trade talks and the implementation of a zero-tariff policy for African countries helped textile and apparel exports rise 6.5% month-on-month to $25.6 billion in May. Exports to the US and EU jumped 24.7% and 25.6% respectively. However, year-on-year exports still fell 2.3%, and cotton garment exports dropped 3.7%, signaling an uneven recovery.
On the import side, the contraction was sharper. Cotton imports plunged 31.7% month-on-month to just 113,000 tons. Brazilian cotton accounted for 57.7%, while US cotton's share rose to 22.1%. The decline reflected mills' waning appetite for foreign cotton amid the off-season and elevated prices.
Global Glut Weighs on International Prices
The USDA's May report raised the 2025/26 global cotton output forecast to 26.702 million tons, consumption to 26.156 million tons, and ending stocks to 16.823 million tons, all near multi-year highs. The ample global supply backdrop pressured international prices.
The Cotlook A Index averaged 92 cents/lb in May, up 6.5% month-on-month, but weakened later due to a strong dollar and poor US export performance. After applying a 1% tariff, the landed price was 15,518 yuan/ton, 2,270 yuan below domestic prices, narrowing the spread by 257 yuan from April. The reduced gap diminished the appeal of imported cotton.
Planting Completed, Seedling Concerns Emerge
By end-May, 99.5% of the national cotton acreage had been planted. But seedling conditions lagged: only 45.9% of surveyed farmers rated seedling growth as good as or better than last year, down 34 percentage points. Persistent rainfall in inland cotton regions caused waterlogging, slowing seedling development. 85.5% of cotton plants were at the 4-to-8-leaf stage, down 8.9 percentage points year-on-year.
While Xinjiang has completed planting and some fields have entered the budding stage, overall seedling quality is inferior to last year. If weather does not improve, yields could be affected, providing potential support for deferred contracts.