In May 2026, China's cotton textile prosperity index registered 49.9%, down 0.1 percentage points from April, marking its first dip below the 50% boom-bust line since last July. This reading officially shifts the industry from 'mild expansion' to 'mild contraction.' However, a closer look at sub-indices reveals notable divergences between prices and sales volume, and between profits and revenue. Yarn prices rose nearly 5%, grey fabric prices surged over 7%, yet both sales volume indices fell below the threshold. This is not a sign of robust demand meeting supply, but a textbook case of cost-push inflation colliding with weak demand.
Raw Material Side: Cotton Correction, Fiber Divergence, Procurement Strategy Shifts
The raw material procurement index stood at 50.2% in May, still in expansion territory but plunging 2.5 percentage points month-on-month. Within this, the cotton procurement index fell sharply to 47.3%, down 6.5 percentage points. The average spot price for Grade 3128 cotton was 17,373 yuan per ton, up 504 yuan from April, a 2.99% increase. But after hitting a year-to-date high following the Labor Day holiday, prices corrected steadily, with the main CF2609 contract falling from 16,955 to 15,855 yuan per ton. This 'surge-and-retreat' pattern, combined with off-season expectations, made mills cautious about restocking.
Non-cotton fibers told a different story. The average price of 1.4D direct-spun polyester staple fiber was 8,027 yuan per ton, down 150 yuan month-on-month, a 1.83% decline, largely due to volatile oil prices amid twists in US-Iran negotiations. Viscose staple fiber prices remained firm, averaging 14,035 yuan per ton, up 325 yuan, a 2.37% increase. Notably, the non-cotton fiber procurement index held steady at 50.0%, while the inventory index rose to 50.6%, 1.4 percentage points above the threshold. This suggests mills are actively building chemical fiber inventories to hedge against cotton price volatility and supply uncertainty.
Production Side: Output Rises but Operating Rates Lag, Order Visibility Limited
The production index came in at 50.3% in May, up 0.9 percentage points month-on-month. The yarn output index and fabric output index rose to 50.1% and 51.4% respectively, both above the threshold. However, the equipment operating rate index was only 49.5%, still in contraction territory. This divergence implies that mills are not ramping up due to full order books, but rather to fulfill pre-existing orders or build inventory ahead of raw material price hikes. An operating rate below 50% suggests actual factory utilization has not significantly improved, raising concerns about capacity utilization.
Looking at product inventory, the index stood at 48.0%, down 3.2 percentage points month-on-month. Both yarn and fabric inventory indices were below the threshold. This might appear as a good sign of destocking, but combined with sales volume indices—yarn sales at 47.7%, fabric sales at 48.8%—it is more likely the result of mills proactively controlling output rather than downstream absorption improving.
Profit Side Surprise: How Long Can Low-Cost Inventory Buffers Last?
The business operation index was 50.0% in May, down 0.2 percentage points. But within it, the profit index stood at 50.7%, above the threshold, while the revenue index was only 49.3%, below the threshold. This set of data reveals the core survival logic of current cotton textile enterprises: revenue is falling, but profits are rising. The reason is that most mills are still using raw materials purchased at lower prices earlier, so cost pressure has not yet fully impacted their current profit-and-loss statements.
This 'profit illusion' is unsustainable. The cotton procurement index has already fallen to 47.3% in May, meaning mills are reducing purchases and drawing down inventories. Once low-cost stocks are depleted and higher-priced raw materials step in, the profit index will face a rapid decline. If downstream demand remains weak by then, the industry could enter a 'volume and price both falling' predicament.
Confidence Rebounds but Remains Weak; Off-Season May Extend into Q3
The business confidence index was 49.4% in May, up 2.7 percentage points from April, but still below the threshold. The rebound is largely a base effect—April's confidence index was extremely low. Industry feedback indicates that companies are cautious about the traditional June-July off-season, with order visibility generally less than one month.
Externally, while the JP Morgan Global Manufacturing PMI remained in expansion at 52.6% for the 10th consecutive month, China's manufacturing PMI was only 50.0%, down 0.3 percentage points month-on-month, hovering at the boom-bust line. The improvement in external demand has not effectively transmitted to the cotton textile segment, with export orders remaining sluggish.