In May 2026, China's cotton textile industry prosperity index fell to 49.9%, slipping back into contraction territory after just one month above the threshold. The seemingly modest 0.1 percentage point decline masks deeper tensions: the traditional off-season has collided with volatile raw material prices, creating a complex operating environment for mills.
Raw Material Price Divergence Strains Costs
The raw material market showed clear divergence. Cotton spot prices rose 2.99% month-on-month to 17,373 yuan per ton, but futures fluctuated wildly, with the main contract swinging from 16,955 yuan to 15,855 yuan. Polyester staple fiber prices, pressured by falling crude oil, dropped from around 8,400 yuan to 7,700-7,800 yuan per ton, with the monthly average falling 150 yuan. Viscose staple fiber prices were relatively firm, rising 325 yuan per ton, but transaction volumes were limited due to ample downstream inventories.
This divergence directly impacted procurement behavior. The cotton purchase index plunged 6.5 percentage points to 47.3%, reflecting cautious buying, while the non-cotton fiber purchase index held steady at 50.0%. The raw material inventory index fell to 48.7%, with cotton inventory dropping 5.5 points to 46.9%, while non-cotton fiber inventory rose 1.4 points to 50.6%. Mills are clearly destocking expensive cotton and shifting toward cheaper alternatives like polyester.
Production Growth Masks Underlying Risks
Despite the index decline, the production index rose 0.9 points to 50.3%, with both yarn and fabric output indices above the threshold. This apparent contradiction is explained by sales and inventory data. The average price of 32-count pure cotton carded yarn rose 4.62% to 23,739 yuan per ton, and grey fabric prices increased 7.35%. Yet the yarn sales index was only 47.7%, down 0.8 points, and the fabric sales index, while up 2.1 points to 48.8%, remained below 50.
Rising prices with falling sales indicate downstream resistance to high-cost yarns. The product inventory index dropped 3.2 points to 48.0%, with both yarn and fabric inventory indices below the threshold and declining, signaling passive inventory buildup. This "produce more but sell less" pattern poses cash flow risks for mills.
Profit Window from Low-Cost Inventories
The enterprise operation index stayed at 50.0%, with revenue below the threshold but profit above it. This paradox stems from mills using raw materials purchased at lower prices in March-April. As long as these cheap inventories last, profit margins look healthy. But this is a temporary cushion—once mills must replenish at current higher prices, margins will compress sharply.
Business confidence improved 2.7 points to 49.4% but remained below 50. Mills expect the off-season to persist, with order volumes declining and sales slowing. Uncertainty over raw material costs further dampens expansion plans.
Three Strategic Responses for the Off-Season
For Buyers - Monitor the cotton-to-chemical fiber price spread and increase non-cotton fiber procurement to hedge against cotton price volatility. - Use futures hedging to lock in raw material costs and avoid decision paralysis during price swings. - Evaluate suppliers' inventory and cash positions, prioritizing partners with healthy balance sheets to minimize supply chain disruptions.
For Mills - Diversify product mix toward differentiated yarns or blends to reduce reliance on low-margin pure cotton yarns and improve pricing power. - Control finished goods inventory; consider adjusting capacity utilization to avoid overproduction during the off-season. - Capitalize on the current profit window to accelerate receivables and build cash reserves for potential raw material price rebounds in Q3.
The off-season will not end soon, but how mills manage price transmission, inventory accumulation, and cost control will determine who emerges stronger when the cycle turns.