Market Analysis: What Is The Potential Impact Of The Ban On Xinjiang Cotton

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Since the news about the ban came out, Zheng cotton futures fell. Cf2101 fell from 12900 yuan / ton to 12600 yuan / ton from September 7 to September 11, a decrease of 2.3%. At the same time, other financial markets also showed a relatively sharp decline. Oil prices, technology stocks and several major stock indexes all fell in the same period. In contrast, ICE Futures seem to have little response, and it seems difficult for the market to clearly define the impact of the ban on cotton prices.

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According to foreign media analysis, the potential impact of Xinjiang cotton ban on cotton supply and demand is still unclear due to the lack of definite details. Although this may lead to further reshuffle of the supply chain, China's cotton import may offset this impact. China recently announced a quota of 400000 tons of processing tax. As long as the textile export can prove that it does not contain Xinjiang cotton, it is possible to avoid being restricted by the Xinjiang cotton ban.

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Since September 2019, the United States continues to impose tariffs on Chinese made garments. From September 2019 to July 2020, China's share of US cotton apparel imports fell from 28% to 22%. Over the same period, ASEAN countries surpassed China in terms of clothing quantity, and the market share increased from 24% to 29%. However, countries other than China may use Chinese yarns or fabrics, so the US ban on Xinjiang cotton may need to track Chinese raw materials.

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In terms of the new cotton production from the United States and other countries, it will be more difficult for us customs to carry out the new cotton production ban, not to mention the fact that most of the cotton products from the United States and other countries are involved in the cotton production. In theory, if we want to trace back the cotton products from the United States and China, it will be more difficult for us customs to implement the new cotton production ban. As is the case with organic cotton or BCI cotton, the lack of an effective blockchain system and potential fraud may make it difficult for the US side to seriously expand its policy based on the source of products. In addition, cotton fibers from different sources are mixed in many spinning machines before yarn production, which makes it very difficult to determine the source of fibers.

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To sum up, at this stage, the ban still faces many problems, including whether the ban will be actually implemented, but the increase of procurement costs related to traceability, the increase of costs related to supply transfer and other uncertainties may affect the order quantity and have a certain impact on cotton flower consumption.

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