In May, domestic cotton prices experienced a roller-coaster ride of 'surge, fall, and rebound,' with the CCIndex 3128B hitting a two-and-a-half-year high of 18,211 yuan/ton on May 7 before quickly retreating. On the surface, this was driven by weakening off-season demand, but the underlying causes are a dual squeeze from imbalanced upstream-downstream profit distribution and a global supply glut.
Weak Supply and Demand: High Inventories and Plummeting Imports
National yarn output in May was 1.869 million tons, up only 2.7% year-on-year and down 1% month-on-month, with Xinjiang yarn output falling 3.6% month-on-month. The average price of 32-count pure cotton yarn was 23,277 yuan/ton, up 795 yuan month-on-month, but far below cotton's 3.6% monthly increase. Spinning mills' profit margins were significantly compressed. This means the cotton price hike failed to effectively pass through to the yarn end, with downstream buyers only making small replenishments at lower prices, lacking the appetite for chasing higher prices.
As of end-May, national commercial cotton inventories stood at 3.745 million tons, 8.3% higher year-on-year, while industrial inventories were 846,000 tons, 10.1% lower year-on-year. The combination of high commercial inventories and declining industrial inventories suggests strong hoarding willingness in the circulation sector but weak consumption in actual production. Cotton imports in May were only 113,000 tons, plummeting 31.7% month-on-month, as companies actively reduced foreign cotton purchases, reflecting cautious expectations for future prices.
Export Recovery Cannot Mask Weak Domestic Demand, Profit Transmission Blocked
Textile and apparel exports in May reached $25.6 billion, up 6.5% month-on-month, with exports to the US and EU rising 24.7% and 25.6% respectively, supported by phased progress in US-China trade talks and the zero-tariff policy for Africa. However, cumulative exports from January to May only grew 0.1% year-on-year, indicating the sustainability of external demand recovery remains uncertain. Cotton garment exports were $2.04 billion, up 11.9% month-on-month but still down 3.7% year-on-year, suggesting cotton products haven't significantly increased their share in the export mix.
On the domestic front, slowing yarn output growth coupled with rising finished product inventories indicates downstream weaving and garment factories are actively destocking during the off-season. The sluggish follow-through of yarn prices, with the spread between 32-count pure cotton yarn and cotton narrowing, means foreign trade companies need to be more cautious in calculating raw material cost fluctuation risks when taking orders.
Global Supply Glut and Domestic Seedling Worries
The USDA's May report raised the 2025/26 global cotton output forecast to 26.702 million tons, consumption to 26.156 million tons, and ending stocks to 16.823 million tons, all at multi-year highs. International cotton prices were pressured by a strong US dollar and poor US cotton exports. 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 spread narrowing by 257 yuan from the previous month. A narrowing spread weakens the price advantage of imported cotton but also limits the downside room for domestic prices.
Domestic new cotton planting progress was 99.5%, with Xinjiang fully completed, but the Yangtze River region lagged by 6.9 percentage points. Continuous rainfall in inland cotton areas caused waterlogging damage. The proportion of surveyed households reporting better seedlings than last year plummeted by 34 percentage points to only 45.9%. Poor seedling conditions could affect new season yields, but under the current global supply glut, output reduction expectations have limited support for prices.
Policy Landing and Industry Consensus: Anchors in Change
The new round of Xinjiang cotton target price policy landed in late May, providing short-term market confidence and triggering a small price rebound. The concurrently held 2026 China Cotton Industry Development Summit Forum, themed 'Change and Restructuring,' gathered nearly 400 representatives and officially launched the origin evaluation work for cotton products. The synergy between policy and industry aims to build a more transparent price discovery and quality traceability system for the supply chain, which has positive long-term significance for stabilizing procurement expectations.
However, in the short term, June to August remains the traditional textile off-season. Without unexpected demand stimulus, cotton prices are likely to maintain a high-level volatile pattern. Companies need to be wary of the downside risk from commercial inventory destocking being slower than expected.