Cotton market: Timeline of U.S. bills involved Xinjiang

On Dec 23, 2021, U.S. President Joe Biden signed the Uyghur Forced Labor Prevention Act, which aroused the hot discussions on cotton market. Later, 13 Chinese associations, including China Cotton Association and textile industrial associations, denounced it. Though this news has no impact on Zhengzhou cotton futures, it is necessary to make a comprehensive review of Xinjiang cotton issues so that industry insiders have a clearer understanding of related issues and the environment.

Currently, the bills that U.S. involved Xinjiang are mainly the Uyghur Human Rights Policy Act and Uyghur Forced Labor Prevention Act.

The Uyghur Human Rights Policy Act was submitted to the U.S. Senate by Marco Rubio on Jan 17, 2019. The U.S. Senate passed the bill on Sep 11, 2019. The U.S. House of Representatives passed the enhanced version of the Uyghur Human Rights Policy Act, which were finally signed into law on Jun 17, 2020.

The Uyghur Forced Labor Prevention Act first appeared in Apr 2020 and was also led by Marco Rubio. The U.S. House of Representatives passed the bill on Sep 22, 2020. However, the discussion was suspended affected by the Sino-US trade negotiation. This bill was signed in Dec, 2021.

The following is a timeline of major Xinjiang-related issues in the three years from 2019 to 2021, and the impact on Zhengzhou cotton futures.

In the three years, there are three time points that have big impact on ZCE cotton.

First is Sep 8, 2020. Reuters reported that U.S. would ban agricultural products, cotton and tomato, from China's Xinjiang region. ZCE major cotton contract dipped 5.46% at the most, and then rebounded somewhat. When the market closed, the cotton contract declined by 4.09%.

Second is Jan 13, 2021. U.S. Customs and Border Protection (CBP) would detain cotton products and tomato products produced in China’s Xinjiang Uyghur Autonomous Region. This ban extended from XPCC to XUAR. ZCE major cotton contract slipped by 2.51% on that day.

Third is Mar 24, 2021. H&M's Xinjiang statement aroused firestorm in China, and ZCE major cotton contract declined by 2.58% on that day. On Mar 25 and Mar 26, the issue continued to impact the market. Meanwhile, macro sentiment was poor at that time with the surging U.S. yield. On Mar 26, ZCE major cotton contract declined to the lowest of 14,285yuan/mt in 2021.

Other news have no big impact on ZCE cotton futures market. With the continual measures in 2020 and 2021, market players have no high expectations. In addition, the two bills have signed into law already currently, and the relations between China and the United States have been tense. If the relations ease, it is favorable instead.

Nevertheless, for entity enterprises, the ban on Xinjiang cotton indeed affects the orders somewhat previously, and currently, enterprises have certain measures to face this problem, using imported cotton and upcountry cotton. From Sep 2020 and Aug 2021, Chinese enterprises have seen good sales and profits by virtue of recovery after the epidemic. In 2020/21 season, Chinese cotton consumption is assessed at 9.35 million tons, up 29% year on year. But after the epidemic, the contradiction between global manufacturing supply and demand is no longer prominent, and China's advantages in good control of the epidemic may gradually disappear. For export companies, it is necessary to expand the export market channels in other countries.