Cotton prices experienced a roller-coaster ride in May. Early in the month, positive signals from US-China trade talks and the implementation of Xinjiang's target price policy drove domestic spot prices to a two-and-a-half-year high of 18,211 yuan/ton. However, as the traditional off-season set in, weak new orders sharply reduced mill restocking appetite, pulling prices back to end the month at high-level volatility.
Demand Side: Off-Season Effects Fully Materialize
The slowdown in yarn output is the clearest signal of weakening demand. National Bureau of Statistics data shows May yarn production of 1.869 million tons, up only 2.7% year-on-year and down 1% month-on-month. Even Xinjiang, a cost-advantaged production hub, saw a 3.6% sequential decline despite an 18.6% annual increase. This indicates that even the most efficient mills cannot escape the off-season drag.
Profit pressure is even more acute. The average price of 32-count pure cotton yarn rose 795 yuan to 23,277 yuan/ton, but the increase lagged behind cotton's price rally. The inability to fully pass on raw material costs to downstream buyers squeezed mill margins. This cost-price scissors directly shifted procurement strategy: mills avoided chasing highs and instead made only small, opportunistic purchases for immediate needs.
Export performance was mixed. May textile and apparel exports reached $25.6 billion, up 6.5% month-on-month but down 2.3% year-on-year. Shipments to the US and EU surged 24.7% and 25.6% month-on-month respectively, suggesting a phase of restocking after tariff policy easing. Whether this recovery is sustainable depends on substantive progress in trade negotiations.
Supply Side: Import Contraction Meets High Inventories
Import cotton markets cooled sharply. May imports were only 113,000 tons, down 31.7% from April, though up 2.3 times year-on-year from a low base. Brazilian cotton maintained a 57.7% share, while US cotton's share rose to 22.1%, reflecting mills' trade-offs between price and quota availability.
Inventory structure deserves close attention. As of end-May, commercial cotton stocks stood at 3.745 million tons, down 13.3% month-on-month but still 8.3% above last year. Industrial stocks were 846,000 tons, down 3.5% monthly and 10.1% annually. Higher commercial stocks indicate unsold cotton in circulation, while falling industrial stocks confirm weak mill buying. Inventory digestion will be a key price driver in the coming two months.
Crop Progress: Weak Seedlings, Inland Rains a Concern
New cotton planting is largely complete, but seedling data is less optimistic. The China Cotton Association reports that 85.5% of cotton is at the 4-8 true leaf stage, down 8.9 percentage points from last year. Inland cotton regions suffered persistent rainfall, with planting progress in the Yellow River and Yangtze River basins lagging by 1.4 and 6.9 percentage points respectively. Localized waterlogging has stunted seedling growth.
Only 45.9% of surveyed farmers rated seedling conditions as better or equal to last year, a sharp 34-percentage-point drop. This suggests that while planted area is slightly down, yield per hectare may face downward pressure. If weather does not improve, new-crop supply expectations could tighten further.
Policy and Market Signals: Supportive but Not Enough for Short-Term Weakness
In late May, the new Xinjiang target price policy was officially announced, giving the market a brief bounce. Meanwhile, the 2026 China Cotton Industry Development Summit was held in Chongqing, launching a cotton product origin evaluation initiative aimed at boosting domestic cotton branding and supply chain coordination. These policy and industry events provided sentiment support, but could not reverse the fundamental demand weakness.
Globally, the USDA May report raised 2025/26 world 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. International prices were pressured by a strong dollar and weak US export performance. The Cotlook A Index averaged 92 US cents/lb, which, after 1% tariff, was 2,270 yuan/ton below domestic prices. Although the spread narrowed, imported cotton retains a price advantage.