They say problems come in waves and,for the Bangladesh’s textile and readymade garment sector, there seem to be no end to worries at present! On one hand it is fighting the fallouts of the Coronavirus pandemic hard even as the country has entered into a week-long lockdown from 14 April to stem the rapid spread of the virus, while on the other, as cotton and yarn prices keep rising on the back of global production shortfall and speculations, it is having a nervous knock-on effect on the industry, right from the spinners to the fabric makers to both domestic and export-oriented readymade garment producers even as production cost has also gone up considerably for them with varied impacts.
To put things in perspective, according to cotton market fundamentals and price outlook, New York Nearby and daily A Index prices of per pound cotton rose by US$0.88 and US$0.92 respectively in February this year from what was US$0.56 and US$0.60 in May 2020 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.
Industry insiders also underlined that global cotton price rate is determined on the basis of the US futures market rate, while on the other hand China, which is also the largest cotton producer and consumer in the world, has now been forced to import more cotton as the previous Trump administration banned imports on all cotton products from China’s Xinjiang province — the US ban applies to raw fibres, apparel and textiles made from Xinjiang-grown cotton even as around 5 million tonnes out of China’s total 6.3 million tonnes of cotton were reportedly produced in Xinjiang in 2019 — over allegations that the products are made with forced labour.
The ripple effect is here for everyone to see as export-oriented factories,which are still fighting the falling global apparel prices, have had to reportedly slash production on account of spiralling yarn cost even if many had orders enough to cater to. And for apparel and fabric manufacturers for the local market, it is a question of hiking their prices or perishing but with the economic recovery still to do a lot of catching up, it is having a direct and deteriorating impact on their sales figures.
On the other hand, small spinners are losing hope as the price of cotton – the principal raw material – skyrocketed to become unaffordable even if reports suggest that while a factory in Bangladesh imported 30 count yarn from India at US$3 a kilogramme last year, it had to pay around US$4.1 per kilogramme this year.
“I am now buying 30/1 count yarn from India and Indonesia at prices US$1 higher than a couple of months ago,” reportedly underlined the Managing Director of Urmi Group Asif Ashraf, interacting with the media not so long ago while adding this has put the operation of the factory at breakeven.
“Buyers are not ready to pay for the additional cost and we have failed to convince them,”reportedly stated Asif even as Chief Executive Officer at Fatullah Apparels Ltd., Fazlee Shamim Ehsan, on his part said spinners were taking advantage of the cotton price hike by charging higher. “The spinners are charging US$1-US$1.3 extra for 1 kilogramme of cotton against a price hike of US$0.20 – US$0.25 per kilogramme, thereby putting us below the breakeven point,”even as he went on to highlight how one of his buyers had sought to halt its order of 25,000 pieces of knit items owing to the cotton price hike.
It may be mentioned here that unlike big spinners who maintain offices in Singapore to buy cotton from the futures market and hedge themselves from future volatility — Bangladesh allows only selective hedging, which takes time to be approved by the central bank and is therefore useless when commodity prices vary overnight — small spinners, mostly catering to the domestic apparel demand, find it a daunting task to handle the existing situation as they cannot even maintain overseas offices and, have to buy cotton at higher prices.
Meanwhile, speaking to the media, Owner of the Narsingdi-based Bismillah Textile, Mohammad Hasan, said, “We bought 80 count yarn from the local market at Taka 230-Taka 235 per pound in December last to produce ladies’ clothing, but the price has now increased by at least Taka 35- Taka 40 per pound.”
As a result, per yard fabric cost has increased by about Taka 5, stated Mohammad Hasan even as he maintained that it will be very tough to adjust the extra cost keeping in with the existing market prices.
Mohammad Hasan’s manufacturing unit has reportedly halved its production from about 5 lakh yards of cotton fabric a month even as he claimed that yarn dealers and spinners were charging excessively for yarns on the pretext of the cotton price hike.
It may be mentioned here that according to some industry people, Bangladeshi spinning and textile mills have the capacity to consume around 27 lakh tonnes of cotton annually even as the cotton consumption was about 15.89 lakh tonnes last year, while it was about 17.42 lakh tonnes in 2019.
Meanwhile, President of the Bangladesh Textile Mills Association (BTMA) Mohammad Ali Khokon, who has been re-elected to lead the BTMA again, reportedly said yarn prices have increased because of the high prices of cotton on the global market even as cotton prices are reportedly going up as its production has been projected to drop this year. Besides, China has increased forward buying after a two-year slow run even as during the Covid-19 pandemic, the demand for cotton-made knitwear items has reportedly increased by about 4 per cent year-on-year, in the global market.
Meanwhile, in what many in the industry cited another reason for the price hike, especially of organic cotton, some Indian organic cotton suppliers have reportedly lost their certification on charges of forgery even as the Chairman of Envoy Group, Kutubuddin Ahmed, said textile millers were facing a shortage of organic cotton as its demand was too high.
The price of organic cotton has risen to US$1.16 per pound from US$0.84 per pound some time ago, reportedly underlined Kutubuddin, who went on to add that even as the textile miller had booked about 600 tonnes of organic cotton, he did not get on-time delivery.
“We received some organic cotton from India but some of them have not sent the certificates, a long time after the shipment,” said Kutubuddin, who is also the Chairman of the world’s first green denim textile.
Meanwhile, as per some industry insiders, an artificial crisis created by the freight forwarders citing congestion is adding to the consignment of cotton taking longer than usual to reach Bangladesh even as cotton suppliers, who usually bore the transportation charge, are not willing to do so.
The freight forwarders are causing an artificial crisis to charge more, citing container congestion at Chinese ports, which is not totally correct, underlined a cotton indenting agent in Bangladesh while adding that as a result of the same, freight costs have almost doubled.
A container freight coming from India now costs about US$4,500 from what was US$2,000 in pre-Covid times, underlined the agent to cite an example.
So, given the current state of affairs, one could assume cotton prices might continue to bother the industry for some time to come, at least.