In May 2026, domestic cotton prices hit a two-and-a-half-year high before retreating sharply, with a monthly fluctuation exceeding 500 yuan per ton. While superficially driven by weak off-season demand and a stronger US dollar, the deeper signal lies in the waning willingness of the supply chain to absorb high cotton prices.
Price Surge and Demand-Supply Mismatch
On May 7, the CCIndex 3128B reached 18,211 yuan/ton, the highest since late 2023. This surge was fueled by tight new-crop supply expectations and concentrated restocking by spinners. However, as the traditional off-season took hold, yarn output fell 1% month-on-month, new orders were insufficient, and mills shifted to 'buy-on-dips' mode.
The disconnect between price and demand became evident: the monthly average cotton price was 17,789 yuan/ton, up 23.1% year-on-year, but the average price of 32s pure cotton yarn was only 23,277 yuan/ton, up 13.7% year-on-year. The yarn price increase was less than 60% of the cotton price increase, meaning profit margins for spinners were squeezed. This is not a sustainable price structure.
Inventory Structure Signals
The divergence between commercial and industrial inventories is notable. By end-May, commercial stocks stood at 3.745 million tons, up 8.3% year-on-year, while industrial stocks were 846,000 tons, down 10.1% year-on-year. Higher commercial stocks suggest supply is not tight; lower industrial stocks indicate mills are destocking, unwilling to hold expensive raw materials.
This 'upstream hoarding, downstream waiting' pattern typically signals limited upside for prices. By month-end, cotton prices had fallen to around 17,500 yuan/ton, down about 700 yuan from the early-month peak.
Structural Shift in Cotton Imports
May cotton imports totaled only 113,000 tons, plunging 31.7% month-on-month. Although still up 2.3 times year-on-year, the sharp monthly drop shows the off-season effect has reached import procurement. Brazilian cotton accounted for 57.7%, while US cotton rose to 22.1%, reflecting improved tariff expectations from US-China trade talks.
The domestic-foreign price gap also narrowed. The Cotlook A index averaged 92 US cents/lb, equivalent to 15,518 yuan/ton after 1% tariff, which is 2,270 yuan lower than domestic prices, with the gap narrowing by 257 yuan from the previous month. A narrower gap means less price advantage for imports, reducing support for domestic prices.
Policy Impact and Crop Variables
In late May, the new round of Xinjiang cotton target price policy was implemented, briefly boosting market sentiment and causing a small rebound. However, policy effects take time to transmit and cannot quickly reverse the weak off-season demand.
More noteworthy are potential supply-side variables. By end-May, national cotton sowing progress was 99.5%, but persistent rainfall in inland cotton regions caused waterlogging, leading to weaker seedling conditions than last year. Only 45.9% of surveyed households rated seedling conditions as better or equal to last year, down 34 percentage points year-on-year. Slower seedling development could affect new-crop yields, creating uncertainty for the 2026/27 supply outlook.
Export Recovery but Structural Divergence
May textile and apparel exports reached $25.6 billion, up 6.5% month-on-month, but still down 2.3% year-on-year. Exports to the US and EU grew over 24% month-on-month, and those to Belt and Road countries rose 9.7%, indicating short-term restocking demand from Western markets. However, cotton garment exports fell 3.7% year-on-year, suggesting cotton's share in export mix is still shrinking.
Cumulative exports from January to May were $116.73 billion, up 0.1% year-on-year, essentially flat. The sustainability of the export recovery is questionable, especially given the uncertainty of US trade policy after the election.