China's cotton market experienced a classic 'rally driven by expectations, then corrected by reality' in May. Early-month concentrated replenishment by mills and tight new-crop supply expectations pushed the CCIndex 3128B to 18,211 yuan/ton, a 2.5-year high. However, as the industry entered its traditional off-season, new orders dwindled and production slowed, pulling prices back to a monthly average of 17,789 yuan/ton, up only 3.6% from April. This peak-and-retreat pattern clearly shows that while cost support remains strong, demand is hitting a ceiling, forcing a renegotiation of pricing power along the supply chain.
Profit Compression at the Spinning Stage
High cotton prices did not translate into proportional yarn price increases. The average price of 32s carded cotton yarn in May was 23,277 yuan/ton, up 795 yuan or 3.5% month-on-month, lagging behind the 3.6% rise in spot cotton. This gap means mills' profit margins are being squeezed from both sides: rising raw material costs upstream and limited acceptance by downstream fabric and garment buyers downstream. National Bureau of Statistics data show May yarn output at 1.869 million tons, up only 2.7% year-on-year and down 1% month-on-month. Xinjiang yarn output fell 3.6% month-on-month, confirming that mills are proactively slowing production to minimize losses. For buyers, current yarn prices sit in a psychological zone where they are reluctant to chase rallies, and actual transactions remain small-lot, need-based.
Export Recovery: Structural but Fragile
China's textile and apparel exports saw a structural recovery in May, driven by the positive outcome of US-China trade talks and the implementation of zero-tariff policies for African nations. Customs data shows exports reached $25.6 billion, up 6.5% month-on-month, with shipments to the US and EU surging 24.7% and 25.6% respectively. However, year-on-year exports still fell 2.3%, indicating the recovery is driven by restocking and tariff expectations rather than a fundamental demand turnaround. Cotton garment exports hit $2.04 billion, up 11.9% month-on-month but down 3.7% year-on-year, highlighting that cotton products continue to lose share to synthetic alternatives and face fierce competition from Southeast Asia. For foreign traders, whether Q3 orders sustain this recovery hinges on concrete progress in tariff negotiations and destocking speed in Western markets.
Cotton Imports Plunge: Brazilian Cotton Dominates, Mills Turn Cautious
May cotton imports totaled only 113,000 tons, a steep 31.7% drop from April. While still up 2.3 times year-on-year, the month-on-month plunge is alarming. Brazilian cotton accounted for 57.7% of imports, while US cotton share recovered to 22.1%. The sharp decline directly reflects weak mill buying interest during the off-season, but the deeper reason is the narrowing domestic-international price spread. In May, the Cotlook A index (after 1% tariff) was 2,270 yuan/ton below domestic cotton, a spread that narrowed by 257 yuan from April. With imported cotton's price advantage diminishing and domestic commercial inventory still 8.3% above last year at 3.745 million tons, mills naturally prefer to destock rather than import more. The USDA May report raised global cotton production to 26.702 million tons and ending stocks to 16.823 million tons, both near historical highs, suggesting limited upside for international prices and further potential spread compression.
New Crop Planted, but Weak Seedlings Raise Concerns
By end-May, national cotton planting progress reached 99.5%, with Xinjiang fully planted. However, inland regions lagged: the Yellow River and Yangtze River basins were 1.4 and 6.9 percentage points behind last year, respectively. More concerning is seedling health: only 45.9% of surveyed farmers rated seedlings as good as or better than last year, down 34 percentage points; 76.8% reported mild disease pressure, down 3.2 percentage points. Persistent rain in inland areas caused waterlogging, slowing seedling growth. Nationwide, 85.5% of cotton was at the 4-8 true-leaf stage, down 8.9 percentage points year-on-year. If weather does not improve significantly, new crop yields may disappoint, reinforcing tight supply expectations and providing support for forward cotton prices.