China's domestic cotton market experienced a classic off-season adjustment in May 2026. Prices surged to a 2.5-year high of 18,211 yuan per ton in early May before retreating sharply, dropping over 400 yuan from the peak by month-end. This volatility reflects a tug-of-war between improved supply expectations and fundamentally weakening demand, directly impacting procurement rhythms and profit margins across the supply chain.
Price Retreat Under Supply-Demand Pressure
National Bureau of Statistics data shows May yarn output at 1.869 million tons, up only 2.7% year-on-year and down 1% month-on-month. Xinjiang's yarn output rose 18.6% year-on-year but fell 3.6% sequentially. Slowing output directly reflects insufficient new orders. Meanwhile, the average price of 32-count pure cotton yarn reached 23,277 yuan per ton, up 795 yuan or 3.5% month-on-month, but the gain lagged behind cotton price increases, intensifying profitability pressure for spinners.
Cotton imports plunged 31.7% month-on-month to 113,000 tons in May, per customs data, directly linked to mills' cautious purchasing during the off-season. Import sources shifted, with Brazilian cotton accounting for 57.7% and US cotton rising to 22.1%. Cumulative imports from January to May hit 825,000 tons, still up 91% year-on-year, indicating earlier rapid import pace with May representing a pause.
Inventory Structure Reveals Market Sentiment
As of end-May, commercial cotton inventories stood at 3.745 million tons, down 13.3% month-on-month but up 8.3% year-on-year. Despite decent destocking, elevated year-on-year levels pressure prices. More notably, industrial cotton inventories fell to 846,000 tons, down 3.5% month-on-month and 10.1% year-on-year. Mills actively reduced raw material stocks, reflecting rejection of high cotton prices and cautious demand outlook.
The domestic-international price spread narrowed to 2,270 yuan per ton in May, down 257 yuan from April. The Cotlook A index averaged 92 US cents per pound, equivalent to 15,518 yuan per ton after 1% tariff. Narrowing spreads reduce imported cotton's cost advantage, potentially curbing further import demand. The USDA's May report raised global 2025/26 production to 26.702 million tons and consumption to 26.156 million tons, with ending stocks at 16.823 million tons, confirming a loose global balance.
Divergent Growing Conditions
China Cotton Association survey shows national planting progress at 99.5% by end-May, slightly behind last year. Xinjiang completed fully, but the Yellow River and Yangtze River basins lagged at 95.6% and 99.3%, respectively. Heavy rains in inland cotton regions caused waterlogging, stunting seedling growth. Only 45.9% of surveyed farmers rated seedling conditions better than or equal to last year, down 34 percentage points. Weak seedling conditions could impact new crop yield expectations, adding uncertainty to forward supply.
Export Bright Spots
Despite weak domestic demand, exports showed structural improvement. Customs data shows May textile and apparel exports at $25.6 billion, up 6.5% month-on-month but down 2.3% year-on-year. January-May cumulative exports reached $116.73 billion, up 0.1% year-on-year. Exports to the US and EU surged 24.7% and 25.6% month-on-month, while Belt and Road countries saw 9.7% growth. US-EU gains link to phased Sino-US trade progress and zero-tariff policy for Africa. Cotton garment exports hit $2.04 billion, up 11.9% month-on-month but down 3.7% year-on-year.