Cotton prices have fallen amid forecasts of a global recession. According to ICE Futures US data, the price of this raw material has fallen by 46 percent in five months. Last May, the price of cotton was $1.33 per pound which is now $0.72 (29 October). However, most of the local spinning millers are not relieved as they have bought cotton at a higher price which remains in their warehouses. They fear a huge loss in it.
Just a year ago, cotton prices hit their highest level in a decade due to increased global demand for apparel. As a result, the textile industry was suffering. Fearing a further rise in prices, many industrialists bought cotton at higher prices to increase their stocks to absorb the shock.
This was a risky decision, but the only other option was to wait. This massive fall in the cotton price in just five months is supposed to give relief to the local millers, but the reality is the opposite. Because the cotton bought at a higher price remains in their warehouses. Additionally, new shipments of cotton purchased at high prices are now starting to arrive in the country.
Meanwhile, an increase in dollar price is driving up the cost of opening letters of credit (LC) which is increasing the production cost. Due to the acute shortage of gas, the production of gas-dependent textile mills has come down to 40 percent. Rising interest rates and inflation and general recession are reducing the demand for apparel in the global market. All together put the local millers in a suffocating situation.
President of BTMA Mohammad Ali Khokon said, “The cotton yarn bought at a higher price has been accumulated without being sold, and cotton shipments are coming one after the other, which will leave the entrepreneurs of this sector in huge losses.”
Chairman of Little Star Spinning Mills Limited Khorshade Alam said to media, “Only due to the fall in the price of cotton, the loss of pre-booked and LC cotton will be multiplied by about 1.6 million dollars.”
Managing Director of Malek Spinning Mills Limited and former president of BTMA. Matin Chowdhury said to media we cannot take this opportunity to reduce the current price of cotton. Due to the fear that the price will increase in the future, which will have to be imported at a higher price, many people have booked in advance. Some factories have already closed due to losses. If the market doesn’t pick up fast, there will be more closures.
Bangladesh is the second largest importer of cotton in the world. Only 1 percent of the total cotton demand is produced locally. Bangladesh is dependent on imported cotton from India, the USA, Brazil and African countries.
Along with this, the situation has worsened due to the devaluation of the taka against the dollar. The dollar price rose as the Federal Reserve raised interest rates. Due to which, cotton produced in the United States has to be bought at a higher price. According to BTMA data, 11 percent of Bangladesh’s total cotton demand is met by imports from America. On the other hand, almost $1 billion worth of orders has been canceled in the last three months due to reduced demand for yarn.
Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) said, “Since the price of cotton has been falling, most of the buyers have kept their orders on hold. Now the price of clothing is being negotiated at new prices and we have to accept it too. As a result, we do not have the opportunity to get the benefit of the reduction in the price of cotton.”
In other times, this fall in cotton prices would have brought smiles to the faces of local spinning mill owners and garment entrepreneurs. But in this situation, it has no use. The entrepreneurs of this sector feel that even garment exporters will not be able to take advantage of the reduction in the price of cotton.