Cotton Prices Retreat Amid Weakening Demand: May Signals Shift in Textile Supply-Demand Dynamics

China's cotton market experienced a sharp reversal in May 2026, with prices initially surging to a 2.5-year high of 18,211 yuan/ton before retreating amid weakening seasonal demand. The month's average domestic price settled at 17,789 yuan/ton, up 3.6% month-on-month but reflecting a clear downward trend.

Supply-Demand Dynamics Loosen New cotton planting was nearly complete at 99.5%, but acreage edged lower. The Xinjiang region finished on schedule, while inland areas, especially the Yangtze River basin, lagged by 6.9 percentage points due to persistent rainfall and waterlogging. Seedling quality deteriorated, with only 45.9% of farmers reporting better or equal conditions versus last year, down 34 percentage points. This raises uncertainty for per-unit yields but has not yet supported prices.

Cotton imports plunged 31.7% month-on-month to 113,000 tons, though they surged 2.3 times year-on-year due to a low base. Brazilian cotton dominated with a 57.7% share, while U.S. cotton recovered to 22.1%. The sharp import drop underscores mills' cautious buying sentiment during the off-season.

Industry Chain Pressure Mounts Yarn production growth slowed to 2.7% year-on-year, with output reaching 1.869 million tons, down 1% month-on-month. Xinjiang's yarn output fell 3.6% month-on-month. Profitability worsened as 32-count pure cotton yarn averaged 23,277 yuan/ton, a 795 yuan increase that lagged cotton's price rise. Mills adopted a wait-and-see approach, reducing industrial inventories to 846,000 tons (-3.5% month-on-month). Commercial stocks, though down 13.3% to 3.745 million tons, remained 8.3% above last year's level, indicating lingering destocking pressure.

Export Recovery Shows Structural Shifts Textile and apparel exports reached $25.6 billion in May, up 6.5% month-on-month but down 2.3% year-on-year. Cumulative exports for January-May edged up 0.1%. Notably, exports to the U.S. and EU surged 24.7% and 25.6% month-on-month, respectively, while Belt and Road countries rose 9.7%. This recovery aligns with improved China-U.S. trade talks and the implementation of zero-tariff policies for African nations. Cotton garment exports grew 11.9% month-on-month to $2.04 billion but fell 3.7% year-on-year, signaling fragile end-demand.

Narrowing Price Gap, Global Oversupply International cotton prices followed a similar trajectory, with the Cotlook A index averaging 92 US cents/lb. After accounting for a 1% tariff, the import price was 2,270 yuan/ton below domestic levels, narrowing the gap by 257 yuan. This reduces the competitiveness advantage of domestic cotton. The USDA's May report raised 2025/26 global production to 26.702 million tons and consumption to 26.156 million tons, with ending stocks at 16.823 million tons—all near historical highs, capping long-term price upside.

Industry Consensus Building In late May, the 2026 China Cotton Industry Development Summit was held in Chongqing, attracting nearly 400 domestic and international delegates. The forum focused on policy, supply chain collaboration, and risk management. A notable outcome was the launch of an origin evaluation program for cotton products, which could enhance brand value and market recognition for domestic cotton.

For Buyers - Adopt a phased purchasing strategy to avoid concentrated buying at price peaks. - Monitor the narrowing domestic-international price gap; consider increasing imported cotton procurement if the gap shrinks further. - Track seedling conditions and weather; prolonged waterlogging in inland areas may delay new crop availability and impact quality.

For Textile Mills - Prioritize product mix optimization toward high-count and differentiated yarns to improve pricing power amid margin compression. - Control finished goods inventory to avoid overstocking in a weak order environment. Use futures to hedge price risks. - Export-oriented mills should focus on U.S. and EU order recovery while expanding into African and Belt and Road markets to diversify trade risks.