Yarn prices rose around 40 per cent between December and June because of increase in cotton price in the international futures market subsequent to a decline in production even as the sustained hike in the global cotton prices has now emerged as a major concern for Bangladesh’s textile and readymade garment (RMG) industry, hit hard by COVID-19 already.
…raw cotton prices have been unstable for the last few years in the world market, underlined Kutubuddin Ahmed, Chairman of Envoy Group speaking to the media even as the United States Department of Agriculture (USDA) data showed that global cotton production was 26.59 million tonnes in the 2019-20 crop year — for cotton, the crop year runs from 1 August to 31 July — which is projected to fall to 24.85 million tonnes in 2020-21.
This has the local garment exporters in a bind, which is now threatening to derail the recovery of the apparel shipment even as it is showing signs of bouncing back from the pandemic-induced slowdown lately.
It may be mentioned here that yarn accounts for around 50 per cent of the cost to produce a garment item, while button, zippers and other accessories comprise the rest, so the increase in the yarn prices in the local markets principally because of the cotton price spike — cotton was traded between US $ 88.21 per pound and US $ 87.72 per pound on 11 June, up from US $ 72.65 to US $ 72.90 on 14 December even as the World Bank Commodities Price Data showed cotton prices soared 21 per cent year-on-year to US $ 1.99 per kilogram in the January-March quarter of 2021, — apart from abnormal rise in freight charge (freight rate was US $ 1,000 per 40-foot container in December, which rose to US $ 3,000 in June, as per Monsoor Ahmed, Additional Secretary of the Bangladesh Textile Mills Association- BTMA) even as the widely consumed 30-count yarn was sold for US $ 4.25 to US $ 4.30 per kg in the local markets very recently, as compared to US $ 3.9 to US $ 4 in December.
The demand for cotton rose 163 per cent between April and June compared to the corresponding period last year as almost all the local mills either enhanced their capacity or have gone for the highest use of the installed capacity because of the rise in demand for yarn, claimed Monsoor and since Bangladesh is not a major cotton-producing nation (Bangladesh produces only around 1.5 lakh bales of cotton annually), 99 per cent of the requirement for the raw material is met through imports.
As per reports, traders, importers and millers import 8 million bales of cotton, spending around US $ 3 billion a year even as, last year cotton imports fell to 7.2 million bales as production halted in many mills after the Government imposed nationwide restrictions to tame the Coronavirus pandemic.
The increase in the cost of raw materials, especially cotton has hit the garment makers hard as despite the increase in the price of raw materials, global retailers and brands are reportedly reluctant to offer prices commensurate with the same even as the situation is now allegedly acquiring such proportions that could very well derail the recovery process if not reined in before it is too late, felt many in the industry.
“The increase in yarn price has pushed up the production cost of a finished exportable garment item by 25 per cent but buyers are offering a mere 5 per cent to 10 per cent increase. One of my buyers had proposed a 3 per cent price rise so I had to reject the offer,” stated a garment supplier on condition of anonymity while adding that the buyer then tried to shift the work orders to Sri Lanka, but the Sri Lankan supplier also did not accept the offered price and finally, a Bangladeshi buying house received the order at a lower rate.
“I am taking the orders to keep my factory up and running. Keeping the factory operational even at an abnormally lower price is also a business,” reportedly underlined Md Fazlul Hoque, Managing Director of Narayanganj-based Plummy Fashions Ltd., earlier speaking to the media even as a European buyer reportedly maintained that some local suppliers were not getting any additional prices from the buyers as retailers and brands booked the orders at least six months ago.
Last year, cotton production was lower in the US and India, the two major suppliers of the raw material for Bangladesh, said Mohammad Ali Khokon, President of the BTMA, adding as a result yarn prices have gone up in local markets.
Meanwhile, it is emerging that it is not only the garment and textile manufacturers who have had to deal with price rise of raw materials, even the accessory makers are forced to deal with spiralling raw material prices.
Increased demand following the complete rebooting of manufacturing hubs in China and India after the pandemic-led shutdown has caused a steep hike in prices of necessary raw materials such as polymer, kraft paper and chemicals, ranging between 40 per cent to 80 per cent, claimed accessory makers while adding they were not getting higher prices for their products as readymade garment prices have dropped in the global market.
“Prices of raw materials have gone up steeply, but RMG exporters are not ready to pay the extra for accessories. We are forced to sell products at lower pre-pandemic prices,” reportedly stated the General Secretary of the Bangladesh Apparel Youth Leaders Association Al Shahriar Ahmed interacting with the media.
As per reports, there are about 1,800 factories producing garment accessories and packaging items in the country, which combinedly supply 40 types of products, such as buttons, plastic hangers, polybags, labels, zippers, tags, tapes, thread, ribbon, rivets, laces, hooks, transfer film, paper, and ink, to the apparel industry even as the accessories and packaging manufacturing industry’s investment now reportedly stands at around Taka 35,000 crore and it employs around six lakh people.
However, industry owners say they are losing money by importing at a higher rate but not getting a fair price at home even as lack of enough capital is also forcing them to import lesser amounts of the now costlier raw materials and lose production.
“The kraft paper we used to import at US $ 800 per tonne now costs US $ 1,400. But apparel exporters are reluctant to increase prices for packaging items they buy from us. We were forced to reduce production to minimise losses,” reportedly stated Owner of SAMS Packaging, AKM Mustafa Selim to media, adding, “We do not have enough capital either. Earlier, I could import 100 tonnes of raw materials with my full capital, but now I can get about half. Banks are also not giving us additional loans. We are barely keeping our factory running to retain the workers.”
According to reports, prices of raw materials for accessories and packaging items have started rising since last January and over the last five to six months, prices of polymer used to make poly bags and hangers have jumped to US $ 1,600 from US $ 960 per tonne, and kraft paper to US $ 1,400 from US $ 880 per tonne.
The prices of ink and chemicals have also increased by US $ 9-US $ 12 and US $ 90 per kg from US $ 7 and US $ 55 respectively, added Shahriar, all of which apart from effecting the accessory makers directly would indirectly impact the garment makers sooner than later, felt many in the industry.
“Freight costs have gone up too. But we are not getting increased prices. So, factories are struggling for survival,” claimed President of Bangladesh Garments Accessories and Packaging Manufacturers and Exporters Association, Abdul Quader Khan.
In the given scenario, if the backward linkage shrinks, apparel export sector will have to rely on imports for accessories, thereby inviting risk of an increase in lead time as well as additional costs, which will negatively impact garment exports, felt many.
“We ourselves are getting lower prices for garment items but we did not cut prices of accessories and packaging items. If buyers do not increase prices of garments, we shall not be able to pay more for accessories either,” stated BGMEA Director Mohiuddin Rubel to the media adding, “In the last five years, our production cost has increased by 30 per cent, and buyers have also reduced prices of apparel items by 2 per cent. How can we pay more for packaging items and accessories,” referring to the predicament faced by the garment exporters, who themselves are struggling in the export front on account of hike in raw material prices and dwindling price points.