In May 2026, domestic cotton prices experienced a classic 'expectation versus reality' tug-of-war. Driven by tight supply expectations and concentrated restocking, the CCIndex 3128B surged to a 2.5-year high of 18,211 yuan/ton early in the month. However, as the textile off-season weakened demand, prices quickly retreated. While the monthly average still rose 23.1% year-on-year, the late-month decline revealed deep structural pressures: insufficient new orders are capping upside potential from the demand side.
Demand Side: Export Recovery Can't Offset Domestic Weakness
Signals of the traditional off-season were clear in May. National Bureau of Statistics data showed national yarn output at 1.869 million tons, up just 2.7% year-on-year and down 1% month-on-month. Xinjiang output grew 18.6% year-on-year but fell 3.6% month-on-month. Yarn price increases lagged behind cotton, with 32s pure cotton yarn averaging 23,277 yuan/ton, up 795 yuan month-on-month, but corporate profit margins continued to narrow. This indicates cost pass-through is not smooth, and downstream fabric and garment mills have limited acceptance of high-priced cotton.
On the export front, structural highlights emerged. General Administration of Customs data showed textile and apparel exports of $25.6 billion in May, up 6.5% month-on-month, with exports to the US and EU surging 24.7% and 25.6% respectively, reflecting the pull of China-US trade talks progress and EU restocking demand. However, year-on-year exports still fell 2.3%, and cotton garment exports dropped 3.7% year-on-year, suggesting overall external demand has not fully recovered.
Raw Material Side: Import Plunge and High Inventories Coexist
Enterprises' cautious outlook was evident in raw material procurement. May cotton imports were only 113,000 tons, plunging 31.7% month-on-month, though up 2.3 times year-on-year due to base effects. Brazilian cotton accounted for 57.7%, while US cotton rose to 22.1%, reflecting a preference for cost-effective Brazilian cotton.
Commercial inventories stood at 3.745 million tons by end-May, down 13.3% month-on-month but still 8.3% higher year-on-year. Industrial inventories were 846,000 tons, down 3.5% month-on-month and 10.1% year-on-year. This 'high commercial, low industrial' pattern indicates upstream destocking pressure persists, while textile mills, squeezed by thin margins and rising finished goods inventories, are reluctant to restock actively.
Policy and Climate: Variables in the Support Floor
The new round of Xinjiang target price policy in late May briefly boosted market sentiment. This policy stabilizes planting expectations by setting a minimum purchase price. Historically, its direct price lifting effect is limited, mainly preventing prices from falling below cost.
On climate, China Cotton Association surveys showed national planting progress at 99.5% by end-May, slightly slower than last year. Heavy rainfall in inland cotton areas caused waterlogging, with seedling conditions worse than last year—only 45.9% of surveyed farmers rated seedling conditions as good or better, down 34 percentage points year-on-year. This introduces uncertainty for the 2026/27 new crop, and adverse weather could trigger supply-side speculation.
International Perspective: Global Ease Weighs on Foreign Prices
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 at recent highs. The globally loose supply-demand balance, coupled with a strong dollar, kept the Cotlook A index at just 92 cents/lb, making imported cotton 2,270 yuan cheaper than domestic after 1% tariff. Although the spread narrowed 257 yuan from April, it remains high, meaning import pressure persists.
Industry Outlook: Q3 Could Be a Key Turning Point
Overall, the cotton market is in a range-bound zone with a ceiling and floor. The ceiling comes from weak off-season demand, high global inventories, and wide domestic-foreign spreads. The floor is supported by policy, potential new crop reduction, and marginal export improvement.