May's cotton market traced a curve that first rose then fell. Early in the month, expectations of tighter new-crop supply combined with concentrated mill restocking pushed domestic cotton prices to a two-and-a-half-year high. But as the textile off-season set in mid-to-late May, insufficient orders and squeezed profits quickly turned buyers cautious. This tug-of-war between supply and demand reflects a market caught between policy support and weakening demand.
Supply-Demand Structure: High Inventories Meet Weak Demand
On the supply side, commercial stocks fell 13.3% month-on-month to 3.745 million tons, but were still 8.3% higher than a year earlier. The market is not short of cotton; it is short of buyers willing to pay the current high prices. Industrial stocks also fell 3.5% to 846,000 tons, as mills adopted a 'buy only on dips' approach and actively destocked.
Imports in May were only 113,000 tons, down 31.7% month-on-month, directly linked to lower operating rates and weaker purchasing appetite for foreign cotton. Notably, Brazilian cotton accounted for 57.7% of imports, while US cotton rose to 22.1%, indicating a shift in import sources. The USDA's 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, confirming a loose international supply-demand balance.
Price Transmission: Narrowing Spread, Squeezed Margins
Domestic cotton averaged 17,789 yuan/ton in May, up 23.1% year-on-year, but 32-count pure cotton yarn rose only 3.5% month-on-month. This weak passthrough means mills' profit margins are being compressed. The price spread between domestic and imported cotton narrowed to 2,270 yuan/ton (1% tariff basis), down 257 yuan from April, making imports slightly less attractive but still competitive.
This price structure directly influenced downstream buying decisions: when cotton is too expensive, mills prefer to cut operating rates rather than chase high prices. May yarn output fell 1% month-on-month; Xinjiang yarn output, despite growing 18.6% year-on-year, also dropped 3.6% month-on-month, confirming the slowdown in production pace.
Export Recovery: Policy Dividends and Market Divergence
While domestic demand weakened, exports showed signs of recovery. May textile and apparel exports reached $25.6 billion, up 6.5% month-on-month, with exports to the US and EU rising 24.7% and 25.6% respectively. This rebound was driven by progress in US-China trade talks and China's zero-tariff policy for African countries, which diverted some orders back from Southeast Asia.
However, exports were still down 2.3% year-on-year, and cumulative growth was only 0.1%, indicating the recovery is not solid. Cotton garment exports rose 11.9% month-on-month but fell 3.7% year-on-year; the US and EU uptick was more seasonal restocking than a trend reversal.
New Crop Growth: Poor Seedlings Add Uncertainty
New cotton planting is largely complete, but seedling conditions are worrying. Only 45.9% of surveyed farmers rated seedlings as better than last year, a 34-percentage-point drop from 2025. Persistent rain in inland cotton regions caused waterlogging; the Yangtze River basin planting progress was 6.9 points behind schedule. Nationwide, 85.5% of cotton was at the 4-8 true-leaf stage, down 8.9 points year-on-year.
Poor seedlings mean potential yield losses. If weather doesn't improve, new-crop output expectations may be revised down. This variable will become a key price driver once the off-season ends.
Policy and Market Consensus: Forum Signals
The 2026 China Cotton Industry Development Summit Forum in Chongqing in late May, themed 'Change and Restructuring,' drew nearly 400 domestic and international delegates. The launch of a cotton product origin evaluation program signals the industry's push for traceability and quality certification. Amid global supply chain restructuring, this move is significant for enhancing the competitiveness of Chinese cotton products.