In May, domestic cotton prices experienced a rollercoaster: the CCIndex 3128B hit a 2.5-year high of 18,211 yuan/ton early in the month, but retreated by month-end due to slack season demand weakness. The monthly average still rose 23.1% year-on-year. However, this increase was not fully passed downstream—the average price of 32s combed cotton yarn rose only 3.5% month-on-month, significantly squeezing corporate profit margins.
Order Contraction and Inventory Divergence
National Bureau of Statistics data shows national yarn output in May was 1.869 million tons, up 2.7% year-on-year but down 1% month-on-month. Xinjiang yarn output was 319,000 tons, with a 3.6% monthly decline. More notably, mills became cautious in replenishing raw materials: cotton industrial inventory fell 3.5% month-on-month to 846,000 tons, down 10.1% year-on-year. This indicates mills are reluctant to accept high-priced cotton, focusing on just-in-time purchases.
Commercial inventories tell a different story: by end-May, national commercial cotton inventory stood at 3.745 million tons, down 13.3% month-on-month but up 8.3% year-on-year. The divergence highlights that upstream traders and ginners are willing to destock at high prices, but downstream demand is insufficient. Such structural divergence often signals that price adjustments are not over.
Import Plunge and External Pressure
The import market reflects the same slack season effect. May cotton imports were only 113,000 tons, plunging 31.7% month-on-month. Although up 2.3 times year-on-year, the base effect is significant. Brazilian cotton accounted for 57.7%, with US cotton at 22.1%. Internationally, the USDA May report raised global 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. Coupled with a strong dollar weighing on US cotton exports, the Cotlook A index averaged 92 cents/lb, translating to 15,518 yuan/ton after 1% tariff—2,270 yuan lower than domestic prices. Although the spread narrowed by 257 yuan from April, external weakness continues to drag on domestic prices.
Structural Bright Spots in Export Recovery
Despite sluggish domestic demand, exports showed signs of recovery. Customs data shows May textile and apparel exports reached $25.6 billion, up 6.5% month-on-month. Cotton-made garment exports were $2.04 billion, up 11.9% month-on-month. Key growth came from Europe and America: exports to the US rose 24.7% month-on-month, and to the EU rose 25.6%. Two factors drive this: first, phased results in China-US trade talks improved market sentiment; second, China's zero-tariff policy for Africa brought back some orders. However, cumulative exports from January to May were only up 0.1% year-on-year, indicating the recovery is fragile and likely restocking-driven.
New Crop Growth and Weather Disruptions
On the supply side, national cotton planting is basically complete at 99.5%, but local weather is unfavorable. The China Cotton Association survey shows the Yangtze River region's planting progress lagged 6.9 percentage points year-on-year due to persistent rainfall causing waterlogging. Nationwide, 85.5% of cotton is in the 4-8 true leaf stage, down 8.9 percentage points from last year. Only 45.9% of surveyed farmers rated seedling conditions better than last year, a 34-percentage-point decline. Poor seedling conditions imply potential downward risk for new crop output, which could support cotton prices in the medium term.
Policy and Industry Consensus
The 2026 China Cotton Industry Development Summit Forum was held in Chongqing on May 28-29, with the theme 'Change and Reconstruction.' The forum launched the origin evaluation of cotton products, which could enhance the brand premium of domestic cotton. Meanwhile, the new round of Xinjiang cotton target price policy stabilized farmers' expectations. However, in the short term, slack season demand weakness and high inventories remain the dominant factors.