In May, the domestic cotton market experienced a full cycle from a sharp rise to a decline. Driven by tight supply expectations and concentrated restocking, the CCIndex 3128B hit a two-and-a-half-year high of 18,211 yuan per ton on May 7. However, as the textile industry entered its traditional off-season and new orders fell short, prices gradually retreated. Although a new target price policy provided a modest boost late in the month, the overall market remained in a high-level consolidation.
Weak Demand and Inventory Pressure
Yarn production growth slowed significantly in May. National Bureau of Statistics data shows that national yarn output reached 1.869 million tons, down 1% month-on-month and up only 2.7% year-on-year. Xinjiang's output fell 3.6% from April to 319,000 tons, still up 18.6% year-on-year but with a narrowing growth rate. The average price of 32-count pure cotton yarn rose 795 yuan per ton to 23,277 yuan, a gain of just 3.5%, far below the 23.1% year-on-year increase in cotton spot prices. This squeezed mill profitability significantly.
Procurement strategies turned conservative. Industrial cotton inventory fell 3.5% month-on-month to 846,000 tons, down 10.1% year-on-year. Commercial inventory, while down 13.3% month-on-month to 3.745 million tons, remained 8.3% above last year's level. This indicates that the market is not short of cotton; rather, downstream demand is insufficient to absorb existing stocks, and mills are increasingly resistant to high prices.
Import Slump and Global Supply Glut
The import market reacted more sharply. Customs data shows May imports of 113,000 tons, down 31.7% month-on-month. Although up 2.3 times year-on-year, that comparison is skewed by a low base. Cumulative imports for January-May reached 825,000 tons, up 91% year-on-year, but the single-month figure has returned to the average of the second half of 2025.
Globally, supply is not tight. The USDA's May report raised 2025/26 world production to 26.702 million tons, consumption to 26.156 million, and ending stocks to 16.823 million—all near historical highs. International prices were pressured by a strong dollar and weak US export sales. The Cotlook A index averaged 92 US cents per pound, translating to 15,518 yuan per ton after 1% tariff, which is 2,270 yuan below domestic prices. The spread narrowed by 257 yuan month-on-month, but imports still hold a price advantage.
Crop Conditions and Policy Signals
New crop conditions are worrying. As of end-May, national planting progress was 99.5%, nearly complete, but seedling health varied. Persistent rain in inland cotton areas caused waterlogging, and the Yangtze River region's planting progress lagged 6.9 percentage points year-on-year. Only 45.9% of surveyed growers rated seedling conditions as good as or better than last year, a 34 percentage point drop. While 76.8% of fields reported mild disease, overall development was slow, with some Xinjiang fields just entering the squaring stage.
On the policy front, the new Xinjiang target price policy provided short-term market support. The 2026 China Cotton Industry Development Summit Forum, held in Chongqing at end-May, focused on "Change and Reconstruction: Shaping a New Global Cotton Landscape" and launched a cotton product origin evaluation initiative. This signals a shift from pure price competition to value certification and supply chain collaboration.
Export Recovery with Structural Divergence
May textile and apparel exports reached $25.6 billion, up 6.5% month-on-month but down 2.3% year-on-year. Exports to the US and EU grew 24.7% and 25.6% month-on-month respectively, becoming the main growth drivers. Cotton garment exports were $2.04 billion, up 11.9% month-on-month but still down 3.7% year-on-year. The export recovery appears to be seasonal replenishment and emerging market release, not a trend reversal.