Domestic cotton prices hit a two-and-a-half-year high in early May before retreating sharply, revealing the deep structural contradictions in the current textile supply-demand balance. The CCIndex 3128B peaked at 18,211 yuan/ton on May 7, but most gains were erased by month-end. The monthly average of 17,789 yuan/ton was up 23.1% year-on-year but only 3.6% higher than April, masking a clear shift from optimism to caution.
Weakening Demand Drives Price Correction
According to National Bureau of Statistics data, May yarn output was 1.869 million tons, up just 2.7% year-on-year and down 1% month-on-month. Xinjiang produced 319,000 tons, with year-on-year growth of 18.6% but a month-on-month decline of 3.6%. As the industry entered the traditional off-season, insufficient new orders forced mills to adopt conservative procurement strategies. Cotton imports plunged 31.7% month-on-month to 113,000 tons, while industrial inventories fell 3.5% to 846,000 tons.
More concerning is the profit squeeze. The average price of 32-count combed cotton yarn was 23,277 yuan/ton, up 795 yuan month-on-month, but the increase lagged far behind cotton prices (3.6% vs. 3.5% on a much higher base). This means yarn prices cannot keep up with raw material costs, narrowing mill margins. Customs data confirmed weak end-demand: May textile and apparel exports were $25.6 billion, still down 2.3% year-on-year despite a 6.5% month-on-month recovery. Cumulative exports for January-May barely grew 0.1%, indicating fragile external demand.
Supply Expectations Diverge: Xinjiang Stability vs. Inland Waterlogging
National cotton planting progress reached 99.5%, with Xinjiang fully planted. However, inland regions lagged: the Yellow River basin at 95.6% and the Yangtze River basin at 99.3%, down 1.4 and 6.9 percentage points year-on-year respectively. A China Cotton Association survey found only 45.9% of farmers rated seedling conditions as better than last year, a 34-percentage-point decline. Persistent rainfall caused waterlogging in inland cotton areas, delaying growth. By end-May, 85.5% of cotton was at the 4-8 true leaf stage, down 8.9 percentage points year-on-year.
This divergence has significant implications for 2026/27 production expectations. While Xinjiang enjoys favorable sunlight and temperature, potential yield losses in inland areas create uncertainty. Meanwhile, the USDA May report raised global production to 26.702 million tons and consumption to 26.156 million tons, with ending stocks at 16.823 million tons. The global supply-demand balance remains loose, but domestic regional production uncertainty provides a floor for prices.
Policy Support and External Risks Coexist
The new round of Xinjiang cotton target price policy implemented in late May briefly boosted market confidence, triggering a small rebound. However, this policy is more about providing a safety net than driving prices higher. Given weak demand, policy alone cannot reverse the trend. Internationally, a stronger dollar and poor US cotton export performance weighed on the Cotlook A index, which averaged 92 US cents/lb. After applying the 1% tariff, imported cotton was 2,270 yuan/ton cheaper than domestic cotton. Although the spread narrowed by 257 yuan from April, it remains wide, maintaining the cost advantage of imported fiber.
Notably, the 2026 China Cotton Industry Development Summit Forum was held in Chongqing in late May, focusing on "Change and Reconstruction" and launching a cotton product origin evaluation program. This signals the industry's efforts to enhance its voice through standard-setting, but its immediate impact on market supply and demand is limited.
Outlook: Range-Bound Volatility Likely
Looking ahead, the June-July off-season will persist, with limited improvement in new orders and mill restocking likely to remain subdued. Commercial cotton inventories of 3.745 million tons, 8.3% higher year-on-year, ensure ample near-term supply. However, the Xinjiang target price policy establishes a floor, while inland seedling damage could reduce new crop expectations. With bullish and bearish factors balanced, cotton prices are likely to trade in a 17,000-18,000 yuan/ton range. A directional breakout would require either a substantial demand recovery or a supply-side surprise.