Domestic cotton prices experienced a roller-coaster ride in May, hitting a 2.5-year high of 18,211 yuan/ton at the start but retreating most gains by month-end. This volatility reflects a tug-of-war between weak off-season demand and policy expectations.
Supply and Demand Both Weaken
On the supply side, new cotton planting was largely completed, but seedling conditions were poor. By end-May, national planting progress reached 99.5%, with Xinjiang fully planted, while the Yangtze River basin lagged 6.9 percentage points YoY. Persistent rainfall caused waterlogging, stunting seedling growth. The proportion of surveyed farmers reporting better seedling conditions than last year dropped 34 percentage points, signaling potential output uncertainties for the new season.
Demand signals were more definitive. May yarn output was 1.869 million tons, down 1% MoM, with Xinjiang output falling 3.6% MoM. Although 32s pure cotton yarn prices rose to 23,277 yuan/ton, the increase lagged behind cotton prices, squeezing mill margins. More critically, insufficient new orders forced mills to replenish only at dips, with cotton industrial stocks down 3.5% MoM. Commercial stocks, though down 13.3% MoM, remained 8.3% higher than last year.
Import Structure and External Pressures
The import market also reflected off-season characteristics. May cotton imports were 113,000 tons, plunging 31.7% MoM but still up 2.3 times YoY. Brazilian cotton's share rose to 57.7%, while US cotton accounted for 22.1%. This structural shift reflects cost competition—Brazilian cotton offers clear price advantages, while US cotton struggled due to a strong dollar and weak export data.
International cotton prices rose then fell, with the Cotlook A index averaging 92 cents/lb, up 6.5% MoM, but weakening at month-end. The domestic-import price spread narrowed to 2,270 yuan/ton, down 257 yuan from April, reducing import attractiveness. For mills relying on imports, this signals easing cost pressure but also reflects a global supply-demand surplus—USDA's May report raised global output to 26.702 million tons, consumption to 26.156 million tons, and ending stocks to 16.823 million tons, all at multi-year highs.
Export Recovery but Structural Divergence
Textile and apparel exports showed signs of recovery. May exports reached $25.6 billion, up 6.5% MoM, with exports to the US and EU up 24.7% and 25.6% MoM respectively. Progress in Sino-US trade talks and the zero-tariff policy for Africa supported order repatriation and emerging market demand.
However, structural pressures persist. Cotton garment exports fell 3.7% YoY, and cumulative January-May exports edged up only 0.1% YoY. The recovery was driven more by non-cotton categories, indicating that terminal demand has not fully rebounded, and high cotton prices face resistance in passing through to end consumers.
Policy Support vs. Market Forces
The new round of Xinjiang cotton target price policy provided some market confidence, but its effect is more about supporting the floor than driving upside. A brief price rebound in late May faded quickly, suggesting the market has already priced in the policy, with future direction hinging on demand recovery.
Meanwhile, the 2026 China Cotton Industry Development Summit Forum held in Chongqing, themed "Change and Restructuring: Shaping a New Global Cotton Landscape," launched a cotton product origin evaluation program. This signals two things: industry consensus on global restructuring, and that origin evaluation will enhance traceability and brand premium for Chinese cotton products.
Outlook
In the short term, June-July remain a traditional off-season, with limited improvement in new orders, keeping cotton prices in a high-range consolidation. However, poor seedling conditions may support forward contracts; if weather issues worsen, output downgrades could trigger a new rally.
Medium-term, watch two variables: whether substantive progress in Sino-US trade talks translates into sustained orders, and how the Brazil-US cotton competition evolves. If the domestic-import spread narrows further, import substitution will weaken, benefiting domestic prices.