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Bangladesh should take benefit of lower price of cotton sale as old stock of yarn finishes

Bangladesh needs to take advantage of the current lower prices of the global cotton trade, as the old stock of yarn in the spinning mills comes to an end for increase in demand from the garment manufacturers.

Currently, the widely consumed 30-carded yarn has been sold between $2.72 per kilogram (kg) and $2.75 per kg compared to $2.60 per kg and $2.65 per kg, two months ago.

Bangladesh should benefit lower cotton price
Figure 1: The low price of global cotton is a great advantage for BD spinners to fight against dumped yarn from other countries to revive the sector.

Recently, the prices of yarn increased to an extent because of higher demand from the garment manufacturers as they are receiving increased work orders from the western retailers and brands.

“The mills have no old stock of unsold yarn now. The old stock is finished as the garment manufacturers are purchasing the yarn from them,” said Monsoor Ahmed, Secretary to Bangladesh Textile Mills Association (BTMA), the platform of the spinners, weavers and dyers.

Although the prices of yarn are low, the old stock is no more, Ahmed said.

Bangladesh is the only country in the world, which is mainly dependent on cotton fiber whereas other major textiles and garment-producing countries have diversified their production to other manmade fiber like viscose.

Bangladesh imports more than 8 million bales of cotton in a year and the consumption of cotton by the mills has been increasing more than by 10 percent year-on-year. The consumption of cotton will continue to grow in the near future because of the high export of garments from here.

Even a one and half year ago, Bangladesh was the highest importer of cotton as the Chinese government stopped buying cotton from other countries with a view to reducing the old stock and own cotton grown by the Chinese farmers.

So, Bangladesh is again the second-largest cotton importer and consumer worldwide. Bangladesh is fully importing dependent on imported cotton as the local growers can supply less than three percent cotton.

BD spinning sector
Figure 2: Recent scenario of BD spinning sector.

Cotton prices varied a lot over the last few years. However, the prices of cotton fell to 66.87 cents per pound in the futures markets this week, which is good news for Bangladesh. Now, Bangladeshi cotton importers can either book a lot of cotton in the futures markets or import the cotton a lot as the prices are declining worldwide.

Even a few months cotton was traded in the futures markets between 85 cents and 90 cents per pound, but now the prices are showing a downward trend because of higher supply and higher production in the major cotton-producing countries like in the USA, Australia, India, China, Pakistan, Uzbekistan, some African countries and in central Asian countries.

If the local spinners can purchase cotton at lower prices, they can supply the yarn and fabrics at lower prices to the local garment makers.

Because the cheaper import of yarn and fabrics from China and India has been affecting the local primary textile sector. As a result, sometimes, the local spinners have to face the problem of low prices of yarn and fabrics.

Monsoor Ahmed, Secretary to Bangladesh Textile Mills Association (BTMA)

As a result, the garment exporters can sell the goods to the western buyers at competitive prices and will able to face the challenges of low prices offered by the buyers during the bad time of export.

Between 2015 and 2017 Bangladesh imported 226,000 bales of cotton each year, but the quantity tripled last year to 785,000 bales (one bale equals 282 kilograms). Last year, Bangladesh imported 8.28 million bales of cotton worth $3 billion.

Globally, the production of cotton will remain more or less 120 million bales in the next year, he said.

Recently, African nations have surpassed India to become the largest source of cotton for Bangladesh as local spinners and millers look to cut down their dependence on a single source for their vital raw material.

Last year, Bangladesh, the largest importer of cotton in the world, met 37.06 percent of its requirement for the white fiber from East and West African countries.

India accounted for 26.12 percent of the total cotton imports, down from more than 60 percent two years ago, according to data from the BTMA.

Last year, 11.35 percent of the cotton came from the CIS (Commonwealth of Independent States) countries, 11.14 percent from the US, 4.65 percent from Australia and 9.65 percent from the rest of the world.

The low quality and irregular shipment of the Indian cotton are the main reason behind the falling imports from the neighboring country, said Ahmed.

It is written in the letter of credit that there may be 3 to 4 percent less cotton than the amount agreed upon when the imported fiber is weighed in Bangladesh. But in many cases, it is 10 to 15 percent less.

The concentration of moisture in the Indian cotton is higher than in other countries, which makes it difficult to store in the warehouses for a long time.

Ahmed also said there are so many advantages when the prices of cotton go down in the international markets.

Because the cheaper import of yarn and fabrics from China and India has been affecting the local primary textile sector. As a result, sometimes, the local spinners have to face the problem of low prices of yarn and fabrics, the BTMA official also said.

As a result, the local spinners cannot make a profit and feel discouraged in the expansion of their operations and for fresh investment in their business, he said. If the investors do not invest in the primary textile sector employment for workers will not be created a lot, Ahmed said.

Although the cotton importers can enjoy the low-price benefit, they will have to be cautious as there is a possibility of inventory and payment of high bank interest rates.

For example, if any spinner imports a huge amount of cotton and made yarn, but could not sell at profitable prices, then he will have to face the challenge of inventory. However, he will have to pay the high bank interest rate for a loan, the industry insiders said.

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