In May, domestic cotton prices experienced a sharp rise followed by a decline, averaging 17,789 yuan/ton for the month—a 23.1% year-on-year increase. Beneath the surface, however, lies an intense tug-of-war between weakening off-season demand and policy-driven support expectations. The textile industry is grappling with a paradox: high cotton prices compress margins, while recovering exports provide periodic order support, straining the upstream-downstream transmission chain.
Off-Season Transmission: Contraction from Orders to Inventories
May yarn output reached 1.869 million tons, down 1% month-on-month, with growth clearly slowing. Xinjiang's production fell 3.6% from April to 319,000 tons, suggesting mills there are proactively curbing capacity despite an 18.6% YoY increase. The average price of 32s pure cotton yarn was 23,277 yuan/ton, up 795 yuan from April, but the 3.5% gain lagged cotton's 3.6% MoM rise, further squeezing mill margins.
This margin pressure directly influenced raw material procurement. Cotton imports plunged 31.7% MoM to just 113,000 tons. Mills replenished cautiously in small volumes at lower prices. Commercial stocks fell 13.3% MoM to 3.745 million tons but still exceeded last year's level by 8.3%. Industrial stocks dropped 3.5% to 846,000 tons, down 10.1% YoY, indicating mills are reluctant to chase high prices and prefer to consume existing inventories.
Structural Export Highlights: EU/US Rebound vs. Emerging Market Divergence
May textile and apparel exports totaled $25.6 billion, up 6.5% MoM but down 2.3% YoY. The rebound in EU and US markets is notable: exports to the US rose 24.7% MoM, and to the EU 25.6% MoM. The phased US-China trade talks and zero-tariff policy for Africa are key policy drivers.
Cotton garment exports reached $2.04 billion, up 11.9% MoM but still down 3.7% YoY. While absolute levels remain below last year, the sequential improvement outpaces overall textile exports, suggesting pre-off-season restocking by brand clients. Exports to Belt and Road countries grew 9.7% MoM, slower than traditional markets, confirming that EU and US remain the primary sources of incremental orders.
Narrowing Domestic-International Price Spread: Imported Cotton Gains Competitiveness
The May Cotlook A index averaged 92 US cents/lb, translating to 15,518 yuan/ton after 1% tariff—2,270 yuan below domestic prices. The spread narrowed by 257 yuan from April, making imports relatively more attractive. Yet actual imports plunged, reflecting that weak demand, not price, is the dominant factor.
Import sources shifted: Brazilian cotton accounted for 57.7%, while US cotton's share rose to 22.1%. The latter increase correlates with eased trade tensions. However, sustainability depends on the global supply-demand outlook: USDA raised 2025/26 global production to 26.702 million tons and ending stocks to 16.823 million tons, both near record highs, capping international prices.
New Crop Sowing and Seedling Conditions: Xinjiang Stable, Inland Risks Emerge
By end-May, national cotton sowing reached 99.5%, with Xinjiang fully completed. However, inland regions face problems: the Yellow River basin reached 95.6% and the Yangtze River basin 99.3%, both lagging last year. Persistent rain caused waterlogging. Nationwide, 85.5% of cotton was at the 4-8 true-leaf stage, down 8.9 percentage points YoY. Only 45.9% of surveyed farmers rated seedlings as better than last year, a 34 percentage point drop.
This suggests that while Xinjiang performs normally, inland production risks are accumulating. If weather doesn't improve, 2026/27 domestic output may fall short of expectations, supporting forward prices.
Policy and Market Dynamics: Post-Target Price Signals
The new round of Xinjiang cotton target price policy was finalized in late May, providing a clear floor for the market. This supported a modest price rebound at month-end amid weak demand. The policy's lasting impact depends on actual subsidy levels and execution details.
The China Cotton Association's 2026 summit in Chongqing, themed 'Change and Restructuring,' signaled the industry's push for global supply chain collaboration. The launch of cotton product origin evaluation means stricter rules ahead, requiring mills to upgrade supply chain documentation.