Three Signals from May Data: Industrial Divergence Amid High Cotton Prices

In May, the domestic cotton market experienced a typical cycle of 'expectation-driven rally followed by reality-led correction.' Prices hit a two-and-a-half-year high early in the month but quickly retreated under the weight of off-season demand and external pressures, ending the month in high-level consolidation. This volatility underscores the intensifying tug-of-war between costs and orders across the industrial chain.

Widening Profit Squeeze: Yarn Prices Fail to Keep Pace

According to the National Bureau of Statistics, national yarn output in May reached 1.869 million tons, up only 2.7% year-on-year and down 1% month-on-month. Xinjiang produced 319,000 tons, up 18.6% year-on-year but down 3.6% month-on-month. The slowing growth reflects insufficient new orders and proactive output cuts by mills.

More telling is the profit squeeze. The average price of 32-count pure cotton yarn was 23,277 yuan/ton, up 795 yuan month-on-month and 2,811 yuan year-on-year. Yet this increase lagged far behind cotton prices, which rose 23.1% year-on-year and 3.6% month-on-month. Mills are caught between high raw material costs and weak downstream demand, with margins under severe pressure.

Import Slump: Mills Adopt a 'Wait-and-See' Approach

Customs data shows May cotton imports at just 113,000 tons, plunging 31.7% month-on-month, though still up 2.3 times year-on-year. Brazilian cotton accounted for 57.7% of imports, while US cotton's share rose to 22.1%. The sharp monthly decline is not due to supply constraints but reflects mills actively slowing their procurement pace.

Commercial inventory data confirms this. As of end-May, national commercial cotton inventory stood at 3.745 million tons, down 13.3% month-on-month but still up 8.3% year-on-year. Industrial inventory was 846,000 tons, down 3.5% month-on-month and 10.1% year-on-year. This suggests mills are consuming existing stocks rather than building new ones, indicating a cautious outlook on future prices.

Structural Concerns in Export Recovery

May textile and apparel exports totaled $25.6 billion, up 6.5% month-on-month but down 2.3% year-on-year. Cumulative exports for January-May reached $116.73 billion, a marginal 0.1% increase year-on-year. The monthly recovery was driven by the easing of Sino-US trade tensions and the implementation of China's zero-tariff policy for African nations.

By market, exports to the US and EU grew 24.7% and 25.6% month-on-month, respectively, while exports to Belt and Road countries rose only 9.7%. The heavy concentration of growth in Western markets poses a risk: any reversal in trade policy could quickly undermine this momentum. Cotton garment exports stood at $2.04 billion, up 11.9% month-on-month but still down 3.7% year-on-year, indicating the recovery has not yet reached last year's levels.

Xinjiang Output Growth Slows Amid Seedling Concerns

According to the China Cotton Association, as of end-May, national cotton planting progress was 99.5%, with Xinjiang fully completed. However, the Yellow River basin lagged by 1.4 percentage points and the Yangtze River basin by 6.9 percentage points. Only 45.9% of surveyed households rated current seedling conditions as better than or equal to last year, a 34 percentage point decline year-on-year. Persistent rainfall in inland cotton areas has caused waterlogging, stunting seedling growth and leaving overall conditions worse than last year.

Xinjiang, the main producing region, saw yarn output growth still high at 18.6% year-on-year, but with a month-on-month decline. If inland production losses materialize, the new-season cotton supply could tighten further, becoming a key variable for future price trends.

Global Supply Glut vs. Domestic Scarcity

The USDA's May report raised the 2025/26 global cotton production estimate to 26.702 million tons, consumption to 26.156 million tons, and ending stocks to 16.823 million tons, all at multi-year highs. This global supply surplus contrasts with the domestic perception of tight supply, creating a price disconnect.

The narrowing of the domestic-international price spread is noteworthy. The Cotlook A index averaged 92 US cents/lb in May, equivalent to 15,518 yuan/ton after a 1% tariff, which is 2,270 yuan lower than domestic prices. The spread narrowed by 257 yuan month-on-month, reducing the cost advantage of imported cotton and likely further dampening import demand.

Industry Consensus: From Price Battles to Structural Rebalancing

In late May, the 2026 China Cotton Industry Development Summit Forum was held in Chongqing under the theme 'Change and Restructuring: Shaping a New Global Cotton Landscape.' Nearly 400 delegates discussed macro policies, supply chain collaboration, and risk management. The forum launched a cotton product origin evaluation initiative, signaling a shift from pure price competition toward rule- and standard-based competition.

For buyers and exporters, the current market environment demands more refined inventory management and market forecasting.

For Buyers - Monitor the domestic-international price spread: when it narrows below 2,000 yuan, imported cotton loses its cost edge, making domestic cotton a better buy. - Implement phased purchasing rather than bulk buying, using price volatility to execute point-price contracts and reduce single-purchase risk. - Prioritize high-count yarn cotton procurement, as weaker inland seedling conditions may affect high-quality supply; consider forward contracts with Xinjiang producers.

For Exporters - Diversify export destinations to reduce reliance on US and EU markets, leveraging zero-tariff policies to expand into Belt and Road and African markets. - Stay agile on US-China trade talks: if tariff concessions continue, increase pricing flexibility for cotton garment exports; if reversals occur, pivot toward non-cotton fiber products. - Use the cotton product origin evaluation tool to enhance supply chain traceability, meeting Western brands' growing demand for sustainable sourcing.