In May, domestic cotton prices traced a sharp rise and fall, with the CCIndex 3128B hitting a 2.5-year high of 18,211 yuan/ton on May 7 before retreating to a monthly average of 17,789 yuan/ton. This volatility reflected a tug-of-war between policy optimism and weak fundamentals. The Xinjiang target price policy provided a brief boost, but the seasonal order drought soon overwhelmed the policy dividend.
Supply and Demand Both Under Pressure
On the demand side, new orders were insufficient in the traditional off-season. National Bureau of Statistics data showed May yarn output of 1.869 million tons, up only 2.7% year-on-year and down 1% month-on-month. The average price of 32S pure cotton yarn was 23,277 yuan/ton, up 795 yuan month-on-month but far below the rise in cotton prices, compressing mill margins sharply. Mill operating rates fell, finished goods inventories accumulated, and industrial cotton stocks declined 3.5% to 846,000 tons.
On the supply side, cotton imports plunged 31.7% month-on-month to 113,000 tons, though still up 2.3 times year-on-year. Brazilian cotton accounted for 57.7%, US cotton rose to 22.1%. Cumulative imports from January to May reached 825,000 tons, up 91%. Commercial inventories of 3.745 million tons, down 13.3% month-on-month, were still 8.3% above last year. The USDA raised 2025/26 global production to 26.702 million tons, consumption to 26.156 million tons, and ending stocks to 16.823 million tons, suggesting ample global supply.
Export Recovery but with Structural Divergence
Positive US-China trade talks and the zero-tariff policy for Africa boosted May textile and apparel exports to $25.6 billion, up 6.5% month-on-month but still down 2.3% year-on-year. Key growth came from the US (up 24.7% month-on-month) and the EU (up 25.6%). This suggests partial order reshoring, but cotton garment exports fell 3.7% year-on-year to $2.04 billion, indicating high cotton prices are eroding cotton's competitiveness versus synthetics.
New Crop: Stable Acreage, Weaker Seedlings
National cotton planting progress reached 99.5%, with acreage slightly down year-on-year. The Yangtze River region lagged at 99.3%, 6.9 percentage points slower than last year, due to persistent rain and waterlogging. Only 45.9% of surveyed households rated seedling conditions as better than or equal to last year, a 34 percentage point drop. Xinjiang had generally favorable conditions but local excess rainfall. Overall seedling conditions were weaker than last year, raising concerns for new crop production.
Narrowing Domestic-International Spread and Policy Variables
The Cotlook A index averaged 92 US cents/lb, equivalent to 15,518 yuan/ton after 1% tariff, 2,270 yuan below domestic prices, with the spread narrowing by 257 yuan from April. International prices were pressured by a strong dollar and weak US cotton exports, while domestic prices were supported by the target price policy. The China Cotton Industry Development Summit Forum in Chongqing launched a cotton product origin evaluation initiative, signaling a shift from trade to branding.