Cotton Textile Sector Under Seasonal Pressure: Price-Demand Divergence and Weakening Inventory Signals

China's cotton textile industry climate index for May 2026 came in at 49.9%, falling below the 50% boom-bust line for the first time in a month. While the 0.1 percentage point decline is minor, the breakdown reveals a structural divergence: upstream prices are rising, downstream demand is cautious, and inventories are accumulating passively.

Raw Material Prices Peaked and Fell, Procurement Slowed

The raw material procurement index stood at 50.2% in May, still in expansion but down 2.5 percentage points from April. Cotton futures, after hitting a year-high of 16,955 yuan/ton, retreated to a low of 15,855 yuan/ton before stabilizing. Spot cotton averaged 17,373 yuan/ton, up 504 yuan month-on-month. However, the cotton procurement sub-index plunged to 47.3%, down 6.5 points, indicating mills actively reduced cotton buying. Non-cotton fiber procurement was flat at 50.0%. Polyester staple fiber fell 1.83% to 8,027 yuan/ton on lower oil prices, while viscose rose 2.37% to 14,035 yuan/ton as mills held prices firm.

Production Expanded Despite Weak Sales

Production index rose 0.9 points to 50.3%, back in expansion. Yarn and fabric output indices hit 50.1% and 51.4%, respectively. Prices of 32s combed cotton yarn averaged 23,739 yuan/ton, up 4.62%, and grey fabric averaged 7.43 yuan/meter, up 7.35%. Yet sales volume indices for yarn and fabric were only 47.7% and 48.8%, both below 50%. The price-volume divergence is clear: mills enjoy better margins from price hikes but downstream buyers resist, sticking to rigid demand. Product inventory index dropped 3.2 points to 48.0%, with yarn and fabric inventory indices at 48.7% and 46.8%, signaling passive stock building.

Business Confidence Recovered Slightly

The enterprise confidence index rose 2.7 points to 49.4%, still below the threshold but the highest in three months. The improvement stems from price-driven profit gains and resilient global manufacturing (global PMI at 52.6% for 10 consecutive months). However, China's manufacturing PMI was flat at 50.0%, highlighting weak domestic demand. The operating index was exactly 50.0%, with revenue below 50% but profit above 50%, meaning current profits rely on cheap raw material stockpiles from earlier months. Once those stocks run out, margins will shrink.

Practical Recommendations

For Procurement Managers - Cotton prices have retreated about 1,000 yuan/ton from the year's peak; adopt small-batch, frequent purchasing to avoid overstocking in the off-season. - Polyester staple fiber is sensitive to oil prices; monitor Iran-U.S. talks and Hormuz Strait passage expectations. If oil continues to fall, lock in Q3 orders. - Viscose prices are well-supported by mill pricing; sign short-term supply agreements to avoid disruptions.

For Exporters - Global manufacturing PMI expansion supports external demand, but hedge against RMB exchange rate fluctuations using forward contracts. - Yarn and fabric prices rose in May, but overseas buyers are price-sensitive; consider modest concessions to secure order volumes and maintain mill utilization. - Watch for capacity recovery in Southeast Asia; if Indian or Vietnamese cotton prices drop significantly, Chinese yarn exports may face price competition.