The cotton market in May resembled a tug-of-war between two opposing forces. Early-month expectations of tight new-crop supply and concentrated mill restocking pushed domestic prices to a 2.5-year high. But the traditional off-season demand weakness and a pullback in international markets quickly erased those gains. The monthly average for domestic spot cotton settled at 17,789 yuan per ton, up 23.1% year-on-year and 3.6% month-on-month.
Off-Season Impact Fully Evident
National Bureau of Statistics data shows May yarn output at 1.869 million tons, up 2.7% year-on-year but down 1% month-on-month. Xinjiang produced 319,000 tons, up 18.6% year-on-year but down 3.6% sequentially. The slowdown reflects insufficient new orders. The average price of 32s pure cotton yarn was 23,277 yuan per ton, up 795 yuan month-on-month, but the increase lagged behind cotton prices, squeezing mill margins. For buyers, this means upstream cost pass-through is not smooth, and yarn players are losing bargaining power.
Lower operating rates cascaded into raw material demand. By end-May, commercial cotton inventory stood at 3.745 million tons, down 13.3% month-on-month but still 8.3% higher year-on-year. Industrial inventory was 846,000 tons, down 3.5% month-on-month and 10.1% year-on-year. Mills shifted from active restocking to minimal just-in-time buying, reflected in a 31.7% monthly plunge in cotton imports to 113,000 tons.
Policy and Trade: Short-Term Boosters
Progress in US-China trade talks and China's zero-tariff policy for African countries injected short-term vitality into exports. Customs data shows May textile and apparel exports reached $25.6 billion, up 6.5% month-on-month, with exports to the US and EU up 24.7% and 25.6% respectively. While the monthly improvement is notable, the 2.3% year-on-year decline reminds us it is not yet a trend reversal. Cotton garment exports were $2.04 billion, up 11.9% month-on-month but down 3.7% year-on-year, suggesting overseas brands remain in destocking mode.
Another key policy signal came domestically. The new round of Xinjiang cotton target price policy landed in late May, briefly lifting prices. But the support was largely emotional, unable to reverse the fundamental downward pressure.
Global Supply Remains Loose
The USDA May report raised 2025/26 global cotton production to 26.702 million tons, consumption to 26.156 million tons, and ending stocks to 16.823 million tons. All three are at multi-year highs. International cotton prices rose then fell in May; the Cotlook A index averaged 92 cents per pound, equivalent to 15,518 yuan per ton after 1% tariff, 2,270 yuan below domestic prices. The spread narrowed 257 yuan from April, eroding the cost advantage for import-dependent mills.
New Crop Concerns Start at Planting
By end-May, national cotton planting progress was 99.5%, with Xinjiang fully completed. But the Yellow River and Yangtze River regions lagged by 1.4 and 6.9 percentage points respectively. More worrying is seedling condition: 85.5% of cotton was at the 4-8 true leaf stage, down 8.9 percentage points year-on-year. Only 45.9% of surveyed farmers rated seedlings as good as or better than last year, a 34-percentage-point drop. Persistent rainfall in inland cotton areas caused waterlogging, stunting growth. If weather does not improve, new-crop output expectations face downside risk.
Industry Consensus: Reshaping Amid Change
The 2026 China Cotton Industry Development Summit Forum was held in Chongqing on May 28-29, with nearly 400 participants discussing 'Change and Reshaping.' The meeting officially launched a cotton product origin evaluation program, signaling a shift from price competition to value certification. For global buyers, this will increase supply chain transparency but may also bring new compliance costs.