In May 2026, domestic cotton prices surged to 18,211 yuan/ton, a two-and-a-half-year high, but quickly retreated to around 17,789 yuan/ton by month-end. This rally was not driven by supply shortages but by a combination of weak off-season demand and policy expectations. The textile industry is shifting from 'panic buying' to 'inventory destocking,' with price volatility reflecting proactive adjustments across the supply chain.
Demand Side: Off-Season Effects Fully Evident
Yarn output in May reached 1.869 million tons, down 1% month-on-month and up only 2.7% year-on-year. Xinjiang's yarn output, though up 18.6% year-on-year, fell 3.6% month-on-month, indicating slowing growth from a high base. The average price of 32s pure cotton yarn was 23,277 yuan/ton, up 795 yuan month-on-month but underperforming cotton price gains, compressing mill profits. This suggests limited capacity to absorb high cotton prices, with procurement shifting to opportunistic restocking.
Exports showed structural recovery: May textile and apparel exports reached $25.6 billion, up 6.5% month-on-month but down 2.3% year-on-year. Exports to the US and EU grew 24.7% and 25.6% month-on-month, respectively, benefiting from US-China trade talks and zero-tariff policy for Africa. However, cotton garment exports fell 3.7% year-on-year, indicating slower recovery in high-value segments, with order rebounds concentrated in conventional items, raising sustainability concerns.
Supply Side: Import Plunge and Inventory Divergence
May cotton imports were only 113,000 tons, plunging 31.7% month-on-month, though still up 2.3 times year-on-year. Brazilian cotton accounted for 57.7%, while US cotton share rose to 22.1%. The import drop directly reflects weakened procurement appetite during the off-season, with mills preferring to consume existing stocks. By end-May, commercial inventories stood at 3.745 million tons, down 13.3% month-on-month but up 8.3% year-on-year; industrial inventories were 846,000 tons, down 3.5% month-on-month and 10.1% year-on-year. Higher commercial stocks versus lower industrial stocks indicate cautious downstream restocking, with pressure concentrated upstream.
The USDA May report raised global 2025/26 cotton production to 26.702 million tons, consumption to 26.156 million tons, and ending stocks to 16.823 million tons, all at multi-year highs. The global supply-demand balance remains loose, with international prices pressured by a strong dollar and weak US export sales. The Cotlook A index averaged 92 US cents/lb, equivalent to 15,518 yuan/ton after 1% tariff, 2,270 yuan below domestic prices, narrowing the spread by 257 yuan and reducing import arbitrage.
Production Zones: Planting Completed but Seedling Conditions Poor
By end-May, national cotton planting progress reached 99.5%, with Xinjiang fully completed. However, persistent rainfall in inland areas slowed progress: the Yellow River region was 95.6% (1.4 percentage points behind), and the Yangtze River region 99.3% (6.9 points behind). Only 45.9% of surveyed households rated seedling conditions better than last year, a sharp 34-percentage-point drop; 76.8% reported mild disease pressure, down 3.2 points. Localized waterlogging has stunted seedling growth, potentially impacting later yield expectations and providing a floor for forward prices.
Policy and Industry Events: Target Price and Summit
The new round of Xinjiang cotton target price policy was implemented, briefly boosting sentiment during the off-season but not altering fundamentals. On May 28-29, the 2026 China Cotton Industry Development Summit Forum was held in Chongqing, themed 'Change and Reconstruction,' with nearly 400 attendees. The event launched a cotton product origin evaluation initiative, aiming to strengthen supply chain traceability and brand premiums, offering practical value for exporters facing green trade barriers.
Price Outlook: Range-Bound Amid High Volatility
In the short term, cotton prices lack a one-sided upward driver. Weak off-season demand, high commercial inventories, and narrowing internal-external spreads all cap upside. However, poor seedling conditions, the target price policy, and marginal US-China trade détente limit downside. Prices are expected to trade in a 17,500-18,500 yuan/ton range through June-July, awaiting autumn order initiation and yield confirmation.