The cotton market in May can be summed up as 'peaked and then fell.' Prices hit a two-and-a-half-year high early in the month, but the off-season effect quickly took hold, and insufficient orders slowed procurement across the supply chain. This price fluctuation reflects a structural contradiction between supply and demand.
Off-Season Effects and Profit Compression
According to the National Bureau of Statistics, China's yarn output in May was 1.869 million tons, up only 2.7% year-on-year and down 1% month-on-month. Xinjiang produced 319,000 tons, up 18.6% year-on-year but down 3.6% month-on-month. The slowdown in yarn output confirms the industry's entry into the traditional off-season. More notably, the average price of 32-count pure cotton yarn was 23,277 yuan/ton, up 795 yuan month-on-month, but the increase was weaker than that of cotton prices. This means spinning mills' profit margins are being squeezed, reducing their ability to accept high-priced raw materials.
Enterprises generally adopted a 'buy on dips' strategy, with industrial inventories falling to 846,000 tons, down 3.5% month-on-month and 10.1% year-on-year. This cautious approach reflects downstream uncertainty about future price trends.
Sharp Drop in Imports and High Global Supply
Customs data show that May cotton imports were only 113,000 tons, down 31.7% month-on-month. Although still up 2.3 times year-on-year, the sharp monthly decline highlights the off-season's suppression of import demand. Brazilian cotton accounted for 57.7% of imports, while US cotton's share rose to 22.1%, reflecting a cost-driven sourcing structure.
Globally, the USDA's May report raised the 2025/26 world cotton production estimate to 26.702 million tons, consumption to 26.156 million tons, and ending stocks to 16.823 million tons. All three indicators are at multi-year highs, capping international price upside. A stronger dollar and weak US cotton exports further dragged down the external market.
Narrowing Price Spread and Policy Support
Domestic cotton prices peaked at 18,211 yuan/ton on May 7 before retreating, then rebounded slightly after the Xinjiang target price policy was announced. The monthly average was 17,789 yuan/ton, up 23.1% year-on-year and 3.6% month-on-month. The Cotlook A index averaged 92 US cents/lb, equivalent to 15,518 yuan/ton after 1% tariff, resulting in a domestic-international spread of 2,270 yuan, narrowing by 257 yuan from April. A narrower spread weakens the price advantage of imported cotton, supporting domestic prices but also reflecting insufficient global demand at higher levels.
The new Xinjiang target price policy provides a floor for the market, but its effects take time to transmit. In the short term, weak demand remains the dominant factor.
## Divergent Crop Conditions and Supply Concerns
By end-May, national cotton planting progress reached 99.5%, with Xinjiang fully completed. However, persistent rain in inland areas slowed progress: the Yellow River region reached 95.6% and the Yangtze River region 99.3%, both lagging last year. Only 45.9% of surveyed farmers rated current seedling conditions as better or equal to last year, down 34 percentage points. This suggests uncertainty about new-crop yields, especially in inland areas affected by waterlogging.
Commercial inventories stood at 3.745 million tons, down 13.3% month-on-month but still up 8.3% year-on-year. Higher inventories, combined with falling imports, indicate weakening market absorption. If demand does not recover, inventory pressure may intensify in the second half of the year.
Signals from Industry Conference
The 2026 China Cotton Industry Development Summit Forum, held in Chongqing at end-May, drew nearly 400 participants. The forum launched a cotton product origin evaluation initiative, signaling a shift from price competition to value competition. For buyers, this means traceability and quality certification will become new procurement standards.