Cotton prices in May traced a pattern of 'rise first, then fall, then rebound'. The surface story is a tug-of-war between sentiment and news, but the underlying reality is the struggle between seasonal demand decline and policy support. CCIndex 3128B hit a 2.5-year high of 18,211 yuan/ton on May 7 before sliding into volatile correction. This reflects a fundamental shift: the textile industry entering its traditional off-season, with output slowing and procurement turning cautious.
Background
Two key drivers shaped May's market. First, positive progress in US-China trade talks and the implementation of Xinjiang's new cotton target price policy boosted sentiment. Second, the seasonal slowdown hit hard: new orders were insufficient, mills bought only on dips, and cotton imports plunged sharply month-on-month. The China Cotton Association kept its supply-demand balance unchanged, signaling a neutral short-term view.
On the supply side, national cotton seeding reached 99.5% completion, but planted area edged down slightly year-on-year. Heavy rainfall in inland cotton regions caused waterlogging, damaging seedling growth. By end-May, only 45.9% of surveyed farmers rated seedling conditions as better than or equal to last year—a 34 percentage point drop from 2025. This implies yield uncertainty for the new season, though prices haven't fully priced it in yet.
Industry Impact
Yarn output data confirmed the seasonal effect. NBS data showed May yarn output at 1.869 million tons, up 2.7% year-on-year but down 1% month-on-month. Xinjiang's output was 319,000 tons, up 18.6% year-on-year but down 3.6% month-on-month. Profit margins tightened: 32s combed cotton yarn averaged 23,277 yuan/ton, up 795 yuan month-on-month but rising slower than cotton prices. This indicates profit concentration at the raw material end, with spinning mills losing bargaining power.
Exports showed structural recovery. Textile and apparel exports reached $25.6 billion in May, up 6.5% month-on-month but down 2.3% year-on-year. Exports to the US and EU rose 24.7% and 25.6% month-on-month respectively, while Belt and Road countries saw a 9.7% increase. Progress in US-China talks, the zero-tariff policy for Africa, and narrowing tariff gaps with Southeast Asia drove order reshoring and emerging market demand. However, cotton garment exports fell 3.7% year-on-year, indicating cotton products didn't fully benefit from the overall export recovery.
Cotton imports cooled significantly: 113,000 tons in May, down 31.7% month-on-month but still up 2.3 times year-on-year. Brazilian cotton accounted for 57.7%, US cotton rose to 22.1%. January-May cumulative imports reached 825,000 tons, up 91% year-on-year. This suggests the heavy import arrivals earlier this year created inventory pressure that amplified when demand slowed. 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 at multi-year highs, putting downward pressure on Chinese prices.
Inventory dynamics are telling. Commercial stocks stood at 3.745 million tons end-May, down 13.3% month-on-month but up 8.3% year-on-year. Industrial stocks were 846,000 tons, down 3.5% month-on-month and 10.1% year-on-year. Commercial stocks above last year indicate slower destocking than expected; falling industrial stocks reflect mills actively reducing raw material positions under profit pressure. The domestic-international price spread narrowed: Cotlook A index (after 1% tariff) was 2,270 yuan/ton below domestic prices, 257 yuan narrower than April, weakening the support from imported cotton.