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Major events of China cotton market in 2020

2021-01-06 08:39:32 CCFGroup

Jan	1. Jan 15, 2020: The purchase details of the first phase of the Sino-US trade agreement were confirmed. China will ensure to purchase no less than $12.5 billion agricultural goods from US above the corresponding 2017 baseline amount in 2020 and $19.5 billion in 2021.
Jan	2. Jan 23, 2020: Wuhan took lock-down measures due to the outbreak of the coronavirus pandemic in China
Feb	1. Feb 3, 2020: Zhengzhou cotton futures market hit the maximum fall in the first day after returning from the Spring Festival holiday. May'20 contract closed at 12,565yuan/mt, down 875yuan/mt and Sep'20 contract closed at 12,950yuan/mt, down 895yuan/mt.
	2. Feb 10, 2020: Plants began to resume work and production.
	3. Feb 17, 2020: Zhengzhou cotton futures market reacted somewhat by the speculation on desert locust in India and Pakistan and lower MLF rate.
	4. Feb 17, 2020: The State Council announced that it would accept applications for new tariff exemptions for 696 products imported from the United States including cotton from Mar 2.
	5. Feb 24, 2020: The pandemic situation was severe gradually outside China.
	6. Feb 28, 2020: Zhengzhou cotton futures market hit the downlimit again. May'20 contract closed at 12,180yuan/mt, down 445yuan/mt and Sep'20 contract closed at 12,625yuan/mt, down 465yuan/mt.
Mar	1. Macro events in Mar: Saudi Arabia launched an oil price war and U.S. stock circuit breaker was triggered four times in one month. In end month, the U.S. launched an unlimited QE+2 trillion dollar anti-pandemic plan, and the G20 would launch a 5 trillion dollar economic boost plan.
	2. Mar 17, 2020: The National Development and Reform Commission stated in a press conference that it might promptly promote the introduction of relevant reserve policies to hedge the impact of the pandemic, but it has not mentioned cotton clearly.
	3. Mar 24, 2020: Lock-down measures started to be taken and apparel stores were shut down successively in Europe and US around Mar 17-18. China's textile and apparel export orders were largely cancelled and delayed. On Mar 24, ZCE major cotton contract dipped below 10,000yuan/mt, to reach a lowest of 9,935yuan/mt, close to the historical low of 9,890yuan/mt on Mar 2016.
	4. Mar 26, 2020: The National Development and Reform Commission announced to set the target price of cotton at 18,600yuan/mt in 2020-2022 in Xinjiang.
	5. Mar 31, 2020: The state cotton reserves ended and about 371.6kt of cotton was reserved into state warehouses.
Apr	1. Apr 8, 2020: The lock-down in Wuhan was lifted.
	2. Apr 20, 2020: US oil prices declined to the negative territory.
	3. Apr 22-23, 2020: Rumors were in circulation that China would reserve 1 million tons of cotton, and might reserve imported cotton. Stimulated by this, ZCE cotton futures market gained some support.
May	1. May 1-6, 2020: During the May Day holiday, Donald Trump threatened to impose additional tariffs on China. On May 6, ZCE cotton futures slumped, but due to large on-call cotton sales and strong demand, market mood was recovered quickly.
	2. May 5, 2020: China has purchased 95.8kt of US cotton during the week ending Apr 23.
	3. The macro situation in May 2020: the lock-down was lifted successively in Europe and US; US put some companies into the Entity List. In addition, the Two Sessions were held in China.
Jun	1. Jun 30, 2020: China announced to implement state cotton auction from Jul 1 to Sep 30, with a quantity of 500kt. During the auction, if the domestic cotton price index is below 11,500yuan/mt, the auction will be suspended next working day, and when the domestic cotton price index is above 11,500yuan/mt for consecutive three days, the auction will restart the next working day.
Jun	2. Jun 30, 2020: the sowing areas of US cotton crops declined by 11% from previous season, according to USDA.
Jul	1. Jul 15, 2020: Xinjiang has confirmed cases of coronavirus pandemic, so the control measures have begun to be tightened, Urumqi was lock down, and other prefectures have also adopted measures such as passage control and isolation. At the end of July, with stricter measures, transportation of cotton from Xinjiang to inland met larger resistance, and market worried about the short-term cotton supply and the ginning work of new cotton.
	2. Jul 21-24, 2020: US closed China's Huston consulate on Jul 21, and on Jul 24, China ordered US to close the consulate in Chendu.
	3. Jul 28, 2020: ZCE revised Cotton futures and option contracts and cotton futures related content in Zhengzhou Commodity Exchange Futures Delivery Rules, Zhengzhou Commodity Exchange Standard Warehouse Receipts and Transit Warehouse Receipts Management Measures, Zhengzhou Commodity Exchange Futures Trading Risk Control Measures, Zhengzhou Commodity Exchange Bonded Delivery Implementation Rules, and would be implemented from September 1, 2021.
Aug	1. Sep 1, 2020: According to the National Development and Reform Commission, 400kt of sliding-scale duty quotas would be allocated, all for non-state owned trade quotas and imports by processing trade term.
	2. The lock down was lifted in early Sep, 2020.
	3. Sep 8, 2020: ZCE overnight cotton futures market slumped, down by over 700yuan/mt affected by lower US stocks and oil prices, conflict between China and India and US ban on Xinjiang cotton.
	4. In early Sep, hand-picked seed cotton for wadding started to be procured in South Xinjiang, and ginners were rush to procure seed cotton.
	5. Sep 14, 2020: The Trump administration shelved plans for a broad import ban on cotton products from China’s Xinjiang region.
	6. Sep 25, 2020: The US government postponed the sanction on Xinjiang Production and Construction Corps until Nov 30.
	7. According to National Development and Reform Commission, 894kt of WTO-related tariff quotas on cotton will be allocated in 2021, and about 33% of quotas are given to state-owned enterprises.
Oct	1. Machine-picked seed cotton was procured intensively in North Xinjiang during National Day Holiday, and new cotton costs moved up as ginners rushed to procure. With continual improved downstream demand and replenishment from traders, ZCE cotton futures market soared quickly. ZCE Jan cotton contract rose to 15,305yuan/mt on Oct 19, up 19.6% compared to the level before National Day holiday.
	2. Oct 21, 2020:　the National Food and Strategic Reserves Administration and the Ministry of Finance announced to reserve 500kt of 2020/21 Xinjiang cotton into state warehouses from Dec 1, 2020 to Mar 31, 2021. The bidding process will be subjected to a maximum price, which will be related with the Chinese spot cotton price, and the price will be adjusted every week. During the reserves, if the Chinese cotton prices are 800yuan/mt higher than international cotton for three consecutive days, the reserves will be suspended, and the reserves will resume when the price spread falls back to 800yuan/mt.
	3. From 2020/21 season, the subsidy based on areas will be cancelled in the four regions in South Xinjiang (Aksu, Kashgar, Kizilsu Kirghiz and Hetian), and the subsidy will be all allocated based on the volumes of seed cotton.　The subsidy for the special cotton (long staple cotton and colored cotton) increases slightly, which is about 30-40% higher than the subsidy for upland cotton.
Nov	1. Seed cotton procurement in Xinjiang was drawing to a close, and the purchase costs of new cotton were basically settled. In South Xinjiang, machine-picked cotton costs were mostly around 14,700-15,300yuan/mt and in North Xinjiang, cotton costs were mainly at 13,500-14,200yuan/mt. Cotton prices were range-bound with the cost support and hedging pressure.
Nov	2. US presidential election was confirmed in early Nov, and Biden won.
Dec	1. Dec 1, 2020: 2020/21 Xinjiang cotton reserves kicked off, but the reserves suspended as the price spread between domestic and foreign cotton was higher than 800yuan/mt.
	2. Dec 2, 2020: U.S. Customs and Border Protection (CBP) personnel at all U.S. ports of entry would detain shipments containing cotton and cotton products originating from the Xinjiang Production and Construction Corps (XPCC).
	3. Under low product and feedstock inventory in grey fabric and cotton yarn mills, cotton yarn prices were pushed up with the procurement from traders and downstream fabric mills, and cotton prices gained support.
	4. With fears of mutant coronavirus, ZCE overnight cotton futures market declined sharply on Dec 21.
	5. Dec 30, 2020: Comprehensive Agreement on Investments between China and EU was concluded.

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