In May, the domestic cotton market experienced a pronounced surge followed by a retreat. Early in the month, tight new-crop supply expectations and concentrated mill restocking pushed the CCIndex 3128B to a 2.5-year high of 18,211 RMB/ton on May 7. However, weakening seasonal demand and a slump in external markets drove prices down. The monthly average stood at 17,789 RMB/ton, up 3.6% MoM and 23.1% YoY. Internationally, the Cotlook A index averaged 92 US cents/lb, up 6.5% MoM, but the domestic-international price spread narrowed to 2,270 RMB/ton.
Demand-side Weakness Emerges
Textile production data signaled a cooling trend. According to the National Bureau of Statistics, national yarn output in May reached 1.869 million tons, up only 2.7% YoY and down 1% MoM. The average price of 32s pure cotton yarn was 23,277 RMB/ton, up 795 RMB MoM, but the increase lagged far behind cotton prices, squeezing mill profits. Mill operating rates fell, finished goods inventories accumulated, and raw material procurement was limited to opportunistic small-lot purchases.
Exports showed modest recovery but remained constrained. May textile and apparel exports were $25.6 billion, up 6.5% MoM but down 2.3% YoY. Progress in US-China trade talks, the implementation of zero-tariff policies for Africa, and narrowing tariff advantages with Southeast Asia supported order repatriation. Exports to the US and EU grew 24.7% and 25.6% MoM, respectively, but cotton garment exports still fell 3.7% YoY, indicating ongoing destocking by overseas brands.
Import and Inventory Structure Shifts
Cotton imports fell sharply month-on-month. Customs data show May imports of 113,000 tons, down 31.7% MoM but up 2.3 times YoY. Brazilian cotton accounted for 57.7% of the total, while US cotton rose to 22.1%. Cumulative imports from January to May reached 825,000 tons, up 91% YoY. The slowdown in import pace reflects mills' cautious sentiment during the off-season rather than supply shortages.
Commercial inventories, though down 13.3% MoM to 3.745 million tons, were still 8.3% higher than last year. Industrial inventories of 846,000 tons fell 3.5% MoM and 10.1% YoY. The coexistence of high stocks and weak demand indicates ongoing destocking pressure. The USDA's May report raised global cotton 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, further dampening bullish sentiment.
Weak Seedling Conditions and Policy Variables
According to a survey by the China Cotton Association, as of end-May, national cotton planting progress was 99.5%, slightly slower than last year. Persistent rainfall in inland cotton regions caused waterlogging, significantly worsening seedling conditions. Only 45.9% of surveyed households rated seedling conditions as better or equal to last year, down 34 percentage points YoY. Xinjiang has completed all planting, with some fields entering the budding stage, but overall development is slower than normal. If weather does not improve, new-crop yields may fall short of expectations.
On the policy front, the new round of Xinjiang cotton target price policy was implemented, briefly boosting market confidence. However, at the 2026 China Cotton Industry Development Summit Forum held on May 28-29, participants broadly acknowledged the theme of "Change and Reconstruction," focusing on global supply chain collaboration and risk management. The China Cotton Association did not adjust its supply-demand balance sheet, signaling official caution.
Outlook: Range-bound with Downside Risks
In the short term, June-July remains the traditional off-season, and the lack of new orders is unlikely to reverse quickly. Cotton prices will likely oscillate between cost support and weak demand. If external markets weaken further or domestic mill operating rates decline, downside risks increase.
Medium-term variables center on two points: the evolution of US-China trade relations and tariff policy adjustments, and the impact of waterlogging on inland cotton yields. High import dependency also makes the domestic-international price spread a key pricing anchor.