In May, cotton prices hit a two-and-a-half-year high in early May then quickly retreated, reflecting a tug-of-war between the textile off-season effect and policy expectations. Yarn output grew only 2.7% year-on-year and fell 1% month-on-month, while pure cotton yarn prices rose 3.5% month-on-month but lagged behind cotton, squeezing corporate profits.
Background
On May 7, the CCIndex 3128B surged to 18,211 yuan/ton, a record since 2024, driven by progress in US-China trade talks, a new Xinjiang cotton target price policy, and tight new-crop supply expectations. However, as the traditional off-season set in, new orders were insufficient, production and sales slowed, and mills shifted to cautious replenishment. Prices then corrected. The monthly average stood at 17,789 yuan/ton, up 3.6% month-on-month but 23.1% higher year-on-year.
Industry Impact
**Yarn production and profit divergence**: National Bureau of Statistics data shows May national yarn output at 1.869 million tons, with Xinjiang contributing 319,000 tons (up 18.6% YoY but down 3.6% MoM). The average price of 32-count pure cotton yarn was 23,277 yuan/ton, up 795 yuan/ton MoM, but mills reported difficulty passing on costs, intensifying profit pressure. This suggests upstream cotton price hikes are not fully transmitted downstream, squeezing textile firms.
**Sharp drop in cotton imports**: May cotton imports were only 113,000 tons, plunging 31.7% MoM but still up 2.3 times YoY. Brazilian cotton accounted for 57.7%, while US cotton rose to 22.1%. January-May cumulative imports reached 825,000 tons, up 91% YoY. The import decline directly reflects weaker off-season demand and cautious purchasing.
**Inventory structure under pressure**: By end-May, commercial inventory stood at 3.745 million tons, down 13.3% MoM but up 8.3% YoY; industrial inventory was 846,000 tons, down 3.5% MoM and 10.1% YoY. Commercial inventory above last year indicates insufficient market absorption, while falling industrial inventory suggests mills are destocking, reflecting conservative outlooks.
**Narrowing domestic-international spread**: The Cotlook A index averaged 92 US cents/lb, translating to 15,518 yuan/ton after 1% tariff, 2,270 yuan/ton below domestic prices, with the spread narrowing 257 yuan from April. International prices were pressured by a strong dollar and weak US cotton exports, while domestic prices had policy support but weak demand. A narrower spread may reduce the cost advantage of imported cotton.
**Global supply-demand loose**: The USDA 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 at multi-year highs. Global output expansion combined with slowing demand growth limits medium-term upside for cotton prices.
**New-crop planting and seedling conditions**: By end-May, national planting progress was 99.5%, with Xinjiang fully completed. However, persistent rainfall in inland cotton regions caused waterlogging, weakening seedling conditions: only 45.9% of surveyed farmers rated seedlings as better or equal to last year, down 34 percentage points YoY. This raises concerns for 2026/27 new-crop yield and quality.