The cotton market in May failed to sustain its earlier rally. Slowing yarn output growth, cautious mill replenishment, and a price peak followed by a retreat all signal that the textile industry has entered the traditional off-season, with the cyclical high for cotton prices likely already in the rearview mirror.
Supply and Demand Both Weaken
According to the National Bureau of Statistics, national yarn output in May reached 1.869 million tons, up 2.7% year-on-year but down 1% month-on-month. Xinjiang produced 319,000 tons, up 18.6% year-on-year but down 3.6% month-on-month. The slowdown reflects insufficient new orders and a decelerated production-sales cycle. Mills purchased cotton mainly in small batches on dips, and cotton imports fell sharply by 31.7% month-on-month to 113,000 tons.
Commercial cotton inventory stood at 3.745 million tons at end-May, still 8.3% higher year-on-year but down 13.3% month-on-month. Industrial inventory was 846,000 tons, down 3.5% month-on-month and 10.1% year-on-year. The dual decline in inventories, which remain elevated year-on-year, indicates destocking driven by risk aversion rather than strong demand.
Cotton Prices Peaked Then Fell, Domestic-International Spread Narrowed
Domestic cotton prices traced an inverted V-shape in May. Driven by tight new-crop supply expectations and concentrated mill restocking, the CCIndex 3128B hit 18,211 yuan/ton on May 7, a two-and-a-half-year high. But as off-season demand weakened and overseas markets corrected, prices gradually declined. The Xinjiang target price policy announcement in late May provided a temporary boost, but the rebound was limited.
The narrowing of the domestic-international price spread is noteworthy. The monthly average Cotlook A index was 92 US cents/lb, equivalent to 15,518 yuan/ton after 1% tariff, 2,270 yuan lower than domestic prices. The spread narrowed by 257 yuan from the previous month, signaling that the cost advantage of imported cotton is fading, which weakens support for domestic prices.
Export Recovery but Profit Squeeze
Thanks to phased progress in US-China trade talks and the zero-tariff policy for Africa, textile and apparel exports in May reached $25.6 billion, up 6.5% month-on-month. Exports to the US and the EU grew 24.7% and 25.6% month-on-month, respectively. However, export value was still down 2.3% year-on-year, and cumulative exports for January-May grew only 0.1%, indicating a fragile recovery.
On the profit side, the average price of 32s pure cotton yarn was 23,277 yuan/ton, up 795 yuan month-on-month, but the increase lagged far behind cotton. Mills are finding high cotton prices hard to absorb. This signals a redistribution of industrial profits: upstream cotton prices remain high, midstream spinning margins are squeezed, and downstream orders cannot pass through cost increases, eventually forcing cotton prices to adjust.
Divergent Seedling Conditions, Inland Areas Hit Hard
By end-May, national cotton planting progress reached 99.5%, with Xinjiang fully completed. However, persistent rainfall in inland cotton areas slowed planting: the Yellow River basin reached 95.6% and the Yangtze River basin 99.3%, lagging 1.4 and 6.9 percentage points year-on-year, respectively. Waterlogging stunted seedling growth, with 85.5% of cotton at the 4-8 true-leaf stage, down 8.9 percentage points year-on-year.
Only 45.9% of surveyed farmers rated seedling conditions as better than last year, a sharp 34-percentage-point decline. Although 76.8% of fields reported mild disease, overall seedling conditions are clearly inferior to last year, potentially affecting new-crop yield expectations.
Industry Consensus: Reshaping the Global Cotton Landscape
The 2026 China Cotton Industry Development Summit Forum held in Chongqing in late May, themed "Change and Reconstruction: Shaping a New Global Cotton Landscape," gathered nearly 400 domestic and international delegates. The concurrent launch of cotton product origin evaluation marks an effort by China's cotton industry to shift from volume-driven to value-driven growth, using origin certification to enhance product premium potential.