Domestic cotton prices rallied to a two-and-a-half-year high in early May before retreating, as the off-season demand contraction clashed with policy-driven optimism. The monthly average price rose 23.1% year-on-year, but market sentiment has shifted to caution. This tug-of-war between supply expectations and weak orders is reshaping inventory and margin dynamics across the textile chain.
Supply and Demand Both Cool
The off-season impact was clear in production data. National yarn output in May reached 1.869 million tons, up 2.7% year-on-year but down 1% month-on-month. Xinjiang, the key producing region, saw 18.6% growth year-on-year but a 3.6% sequential decline. Slowing yarn output directly reflects insufficient new orders.
Weak downstream demand quickly transmitted upstream. Cotton imports in May fell sharply to 113,000 tons, down 31.7% month-on-month. The 2.3-fold year-on-year increase was largely due to a low base. Brazilian cotton accounted for 57.7% of imports, followed by US cotton at 22.1%, indicating mills favor cost-effective and stable supply sources.
Inventory Structure Reveals Industry Strain
By end-May, commercial cotton stocks stood at 3.745 million tons, down 13.3% month-on-month but still up 8.3% year-on-year. Industrial stocks fell 3.5% to 846,000 tons, down 10.1% year-on-year. The contrast—higher commercial stocks but lower mill stocks—suggests ample upstream supply but extreme caution in mill restocking due to squeezed margins and rising finished goods inventories.
The average price of 32s pure cotton yarn was 23,277 yuan/ton, up 3.5% month-on-month, lagging behind cotton's 3.6% price increase. This gap indicates mills are unable to fully pass on costs, pressuring profitability. For buyers, current high cotton prices pose risks if downstream orders cannot support further increases.
Policy and Trade Provide Temporary Support
Progress in US-China trade talks and China's zero-tariff policy for African countries boosted textile and apparel exports by 6.5% month-on-month in May. Exports to the US and EU rose 24.7% and 25.6% month-on-month, respectively. However, year-on-year exports still fell 2.3%, suggesting the rebound is driven by short-term order backflow rather than a sustained recovery.
The new Xinjiang cotton target price policy, announced in late May, triggered a minor price rebound. But its impact is mainly on stabilizing planting expectations rather than altering near-term supply-demand dynamics. The China Cotton Association kept its supply-demand balance unchanged, reflecting official caution.
Weak Seedling Growth Adds Uncertainty
As of end-May, national cotton planting progress was 99.5%, slightly behind last year. The Yangtze River region lagged by 6.9 percentage points due to persistent rains causing waterlogging. Only 45.9% of surveyed farmers rated seedling conditions as good as or better than last year, down 34 percentage points. If adverse weather continues, new crop yields may fall short, providing support for forward prices.