Very recently cotton prices surged near a 10-year high on demand-supply constraint, which have had an adverse impact on the garment makers in Bangladesh as price of raw materials — yarn and fabric — rose significantly. If that was not all, there’s been reports of prices of raw materials sourced from China, which coincidentally is a major raw material source for Bangladesh garment makers, increasing as well as the ongoing gas and electricity crisis in the world’s second largest economy is expected to continue for at least four more months with the advent of winter when consumption peaks.
Domestic cost pressures, fuelled by energy shortages, have already halved factory outputs in China, eventually forcing its suppliers to hike product prices by up to a 100 per cent, claims reports adding Bangladesh, which depends on China for about 60 per cent of its raw materials required for export sectors, is not shielded from its impact as the country’s export industries, especially the RMG sector, have started to feel the heat as they are compelled to import industrial inputs from China at high costs to cater to the work orders that are coming in from the global buyers.
“Raw material prices have doubled over a month, and shipments that would take a week now take more than a month…,” claimed Fazlee Shamim Ehsan, Chief Executive Officer at Fatullah Apparels Limited, speaking to the media while adding that this situation may not be normalised before March next year as China’s power shortage might not end before the advent of spring, even as Kutubuddin Ahmed, a former BGMEA President said costs of inputs from China have added to the woes of textile and apparel industries, adding it was now not possible to shift to another country to source such raw materials and capital machinery owing to pricing issues as China is a more competitive sourcing hub but added if the situation continues for a long time, alternative suppliers will be developed.
Meanwhile, reports suggest Chinese dyes and chemicals now cost around US $ 22/ kg, from what was only US $ 13/kg a month ago even as imports from China totalled US $ 13.55 billion in the last fiscal year, which include industrial raw materials and capital machinery, apart from a host of consumer goods.
“The way prices of raw materials increased is unbelievable for Bangladeshi importers, but we still have to procure at very high prices to maintain export commitments,” reportedly claimed Director (Operation) at Square Denims Ltd., Sayeed Ahmad Chowdhury, while adding liquid indigo now costs US $ 8.20/ kg, which was US $ 4.80/kg some time back.
Already reeling under such a situation, Bangladesh garment makers were in for a further blow after recent increase in fuel prices in Bangladesh that have pushed up the overall cost of doing business and have come at a time when the sector is just beginning to revive and is bagging considerable work orders from overseas buyers even as according to the Bangladesh Bureau of Statistics (BBS), about 84 per cent of domestic manufacturing industries witnessed an uptick in production cost in FY ’21 even if local production costs in 90 per cent of apparel industry sub-sectors went up even before the latest spell of fuel price hike.
As per BBS, production costs in 9 out of 10 sub-sectors of the garment sector – including spinning, cotton, silk, synthetic, jute, hand loom, and knitwear – increased by 1 per cent – 58 per cent in the fiscal 2020-21 as compared to the previous year even as the Domestically Produced Industrial Goods index of the BBS shows production cost of spinning and cotton textile fibre has increased by 56.22 per cent while textile production has become 13.62 per cent costlier over the past one year.
Meanwhile, according to the market operators, price enhancement will not only increase production costs of the diesel-run power generation, but also the overall transport costs significantly even as the Government raised the prices of diesel and kerosene at retail level by Taka 15 per litre.
Speaking to the media, President of the Dhaka Chamber of Commerce and Industry Rizwan Rahman said, “Even though there were no sales during the Coronavirus pandemic, factory owners had to pay workers’ wages and bear factory operating expenses. Raw material prices have risen in the global market. Transportation costs inside the country have also gone up. As a result, production costs have increased in all sectors,” while President of the Bangladesh Textile Mills Association (BTMA) Mohammad Ali Khokon, while interacting with the media, on his part added that in reality, the cost of production has become much higher than what BBS data show, even as he highlighted that the price of cotton has more than doubled in the past one year while fibre prices have risen by more than 50 per cent.
Prices of almost every raw material has surged by more than 25 per cent; as a result, the cost of production has increased, claimed the BTMA President even as expressing his views on the implications of the fuel price hike on the garment industry, BGMEA Vice-President Shahidullah Azim said the cost of doing business would be higher as many factories are running on diesel-run generators while adding the cost of transportation to and from factory to port in order to bring imported goods and exportable finished garment items would also go up significantly.
“We might not make timely shipment…,” expressed the BGMEA Vice-President while underlining that Bangladesh is already in a disadvantageous position due to its long lead time even as many industry insiders reportedly maintained that the industry is already facing difficulties with increased production costs for 200-300-per cent rise in freight charges and price hike of raw materials, especially yarn, followed by higher global cotton rate.
Exporters now fear that the flow of orders may not bring good results as they will face additional liabilities for any failure to ship timely braving all the odds even as echoing Shahidullah Azim’s views, Mohammad Hatem, who is the Executive President of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) added that the knitting and dyeing of the local knitwear sub-sector run on diesel and hence is going to be impacted by the fuel price hike.
All these will deal the industry a blow and we’ll lose our competitiveness in the global market, stated the BKMEA Executive President to wind up on a sombre note!