Seasonal lull in cotton demand caps price gains, despite long-term supply tightness

Entering May, the cotton market has once again fallen into the familiar "strong expectations versus weak reality" dynamic. Long-term bullish factors, including anticipated production cuts in the new cotton season and a tight global supply-demand balance, continue to support cotton prices. However, these are being offset by concentrated pressures from the downstream sector, such as the traditional off-season, sluggish domestic and export orders, and spinning mills suffering losses.

On the supply side, expectations of a tight balance in the new crop year persist both in the domestic and overseas markets.

Internationally, the USDA's May WASDE report projects 2026/27 global cotton production at 25.265 million tonnes, a decrease of 1.437 million tonnes year-on-year, while consumption is forecast to rise to 26.495 million tonnes, an increase of 340,000 tonnes. The global supply-demand gap is expected to widen to 1.23 million tonnes. Ending stocks are projected to fall to 15.6413 million tonnes, with the stocks-to-use ratio dropping further to 59.04%. Among major producing countries, 61.5% of key US cotton-producing areas have been influenced by drought.

Back to the domestic market, according to a Mysteel's survey, the actual cotton planting area for the new crop year is expected to decline by 3-5% year-on-year, partly due to strict controls on groundwater over-extraction. In addition, if yields remain at last year's level, supply in the new crop year is still expected to face contraction.

According to Mysteel's research, national commercial cotton inventories are trending downward. As of May 22, 2026, total commercial cotton stocks stood at 3.79 million tonnes, down 119,000 tonnes (or 3.04%) from the previous week, but up 8.46% year-on-year. Meanwhile, market rumors regarding policies such as reserve cotton releases have yet to materialize, leaving any policy move capable of triggering volatility in expectations.

Meanwhile, May to August is the traditional off-season for the textile industry in China. Fabric mills and garment companies are challenged by poor orders, with new orders primarily small-scale and short-term. Both domestic and export demand have fallen short of expectations. Data shows that in April, China's textile and apparel exports reached $24.053 billion, a slight year-on-year decrease of 0.5%, pointing to a weak recovery in external demand.

As cotton prices have continued to rise, inland spinning mills have been trapped deep in loss-making territory. Recently, the losses of C32S carded yarn have exceeded Yuan 1,000/tonne. Under profit pressure, spinning mill operating rates have continued to decline, with average operating rate in major producing areas falling to 75.7%. Small and medium-sized mills have generally reduced operations to 60–70%, with more mills cutting production or lowering operating rates. At the same time, spinning mills show little willingness to purchase raw materials, adopting a hand-to-mouth procurement strategy to strictly control inventory risks.

Overall cotton and yarn prices are likely to remain soft in the near term. Off-season demand is unlikely to see significant improvement. Spinning mills' willingness to procure will remain subdued under persistent losses. Coupled with factors such as potential reserve cotton release and easing weather concerns in US cotton-growing regions, the upside for prices is limited.