A secure policy is urgent to build stable yarn price because abrupt changing without prior notice is killing the manufacturing sector.
Being a most prone income sector of Bangladesh economy, when the wheels of the textile industry started spinning a successful story, the most important material ‘yarn’ price is skyrocketing and affecting the overall profits. Increasing cotton yarn prices is creating new hassles.
An extraordinary general meeting (EGM) of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) was held at a hotel in the capital recently to fix yarn prices at least for a month which may help them to negotiate prices of their goods with global importers.
They also demanded some control on the export of cotton and yarn, stressed the need to focus more on value-added exports of garments rather than raw cotton or fabric as the value addition is over six times if the same amount of cotton yarn is exported.
Shafiul Islam Mohiuddin, MP and former FBCCI President was the chief guest, and Selim Osman, President of BKMEA, moderated the program.
The EGM focused on the pandemic, the main culprit behind high raw materials’ price and slashed demands of finished goods. It is adversely affecting the competitive strength and performance of the apparel industry. Besides price fluctuation, fabric availability has become a serious issue as weaving units are not making any delivery commitments. Sandwiched between spiraling raw material (yarn) cost and rise in cloth prices, weaving units have been forced to cut production.
Managing director of KAP’S Fashion-Shamima Akhter talked about good responses from the buyers and better work order flow is but without any declaration, changing yarn prices is forcing Bangladeshi exporters to lose their global competitiveness.
“It’s hindering to fix a deal with the buyers within the set prices. It goes up by $0.10 to $0.20 per kilogram amid negotiations between a buyer and a yarn manufacturer,” said Zakir Hossain Jewel, Managing Director of Best Style Compositor.
Spinning mills are flummoxed, as cotton accounts for nearly 70% of their total costs. Resistant textile firms buy yarn at higher levels and so mills could hike prices by only 37-40%. This impacts profit margins because when mills agreed to reduce yarn prices, the cotton price goes higher.
The only hope is for cotton prices to come down. But that seems unlikely. Though the International Cotton Advisory Committee lowered its forecast of global cotton production, with rising consumption, global cotton stocks are down to 1989-90 levels.
Again, most mills have barely a month’s stock of cotton, whereas contracts with the textile makers are of longer duration at lower price levels.
The raw material cost has increased by 40 percent, while cloth prices have not moved up in proportion to firm yarn prices. This has hit the weavers, especially small-scale units. The daily production cloth has fallen greatly due to surging prices of various types of yarns.
BKMEA data analysis showed the prices of mostly consumed 30-carded yarn rose to $4.81, which was $2.78 last year. In February 2021 price went up to $3.77 per kilogram that was $2.94 in 2020.
Yarn prices have simultaneously increased by 15%. The industry is jacking up the cotton yarn price recurrently and disproportionately. Corporate profits have also increased including 30% of the processing fee.
“It’s hindering to fix a deal with the buyers within the set prices. It goes up by $0.10 to $0.20 per kilogram amid negotiations between a buyer and a yarn manufacturer.”
A tripartite meeting among Bangladesh Textile Mills Association (BTMA), Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and BKMEA was called to put a leash on the price hike. They also urged to inform the buyers about the change 15 days prior.
A sharp increment of the cotton price is liable for a global yarn price surge as it’s an imported product for many non-cotton-producing countries. The reality of the apparel and textile industries is now demanding a set price keeping a 3% profit based on the index of global cotton prices.
BTMA data found per pound cotton cost $0.90 to over a dollar this month, which was $0.56 to $65 in 2020.
Customs officials’ harassment is like rubbing salt on the wound of exporters. Within the next four months, two Eids will be held, when workers’ wages and bonuses have to be paid. More or fewer businessmen have to repay both loan installments and interest so the meeting earnestly requested the government to consider either the installment or the interest.
The government should not take any steps that may pressurize the exporters as like repayment of loans. Further extension for repayment can be given, said Fazlul Haque. Analysts say that the profit before interest and tax of most midsize companies is only two-three times the interest.
A new stimulus package considering the present situation is needed just to survive.
BKMEA First Vice President Mohammad Hatem proposed the government stop harassment by VAT and Customs officials.
He also said- few government officials are making the business process harder and unnecessarily harassing the exporters, where the government is working hard to improve as well as ease business.
BGMEA Vice President SM Mannan Kochi and former Senior Vice President Faruque Hassan and BKMEA director Fazle Shamim Ehsan were present among the others.