Exorbitantly high cotton yarn prices have reportedly thrown home textile exporters in the country off balance.
The promising sector that gave new hope for export in the last fiscal year by attracting international buyers with quality products at competitive prices and on-time delivery is now losing orders as buyers are not agreeable to increasing product prices in line with the surging yarn price, according to industry insiders.
Entrepreneurs in the sector have alleged that local textile mill owners are charging higher prices by creating an artificial crisis of yarn.
Taking into account the import cost of raw material cotton, a 5-6% higher price of yarn in Bangladesh as compared to other countries is reasonable, they observed, adding that the actual price hike, however, is more than 30%.
If this trend continues for a long time, buyers may move away from Bangladesh and turn to other competitor countries such as Pakistan, they fear.
In this situation, the Bangladesh Terry Towel and Linen Manufacturers and Exporters Association (BTTLMEA), an organisation of entrepreneurs in the country’s home textile sector, has demanded that exporters who do not have bond licences be allowed to import yarn from abroad at discounted tariff.
Spinning mill owners, however, are of the opinion that imports of yarn from abroad will not bring about any considerable benefit as the price of yarn is on the rise in the international market as well.
Owing to an increase in the price of cotton, yarn prices have gone up also in other countries, they have said. They also claim that the price of yarn in Bangladesh is not too much as compared to other countries.
Currently, there are more than 50 companies in the country that manufacture home textile products, including terry towels. Of these, only five or six have bond licences.
The other companies are medium-sized and have relatively smaller investments. They are largely dependent on locally-produced yarn. These companies have to pay about 37% duty if they import yarn directly from abroad.
However, those who have bond licences can import yarn or other accessories without duty.
Again, if imported yarn is used, the sector will not get the prevailing 9% cash incentive.
Because of all these regulations, home textile manufacturers use local yarn. Taking advantage of the situation, local spinning mill owners have hiked the price of yarn by creating an artificial crisis of the product, as alleged by terry towel makers.
Disagreements between spinning mill owners and home textile mill owners have continued to grow over the issue in recent times.
Against such a backdrop, a recent meeting involving all parties decided that yarn prices would not go up further. The meeting also took an initiative to form a committee comprising representatives of all stakeholders to fix the price of yarn in consideration of the price of cotton.
However, owners of relatively small home textile mills have claimed yarn is no longer available in the market after the meeting decided that the price would not go up.
Mohammad Emranul Ehasan, chairman of Entrust Textile BD Limited, told The Business Standard (TBS) that spinning mills are not providing pro forma invoices or PIs (offering quantity and price of yarn).
Mentioning the names of three big textile mills in the country, he said, “Two of them have stated that they do not have stocks of the yarn we need. Another company has issued a PI for a small amount of yarn.”
Mentioning that the yarn crisis has worsened since the recent meeting of all parties concerned, Mahfuzur Rahman Bappy, managing director of Maanuri Textile, told TBS that his company had to say no to a $2.5 lakh worth of purchase orders from a US buyer last Monday as it could not match the price offered by the buyer with the current yarn price.
“These orders may shift to Pakistan or Vietnam,” he said.
M Shahadat Hossain Shohel, managing director of Towel Tex Limited and chairman of BTTLMEA, said he himself was not able to take orders worth $1.2 million from several buyers.
“Most of our members are now unable to accept purchase orders due to the exorbitant price of local yarn,” he said.
“These orders could move away from Bangladesh to other countries, including Pakistan.”
Basically, 10-count and 16-count yarns are used to make terry towels.
M Shahadat Hossain Shohel said the prices of these two categories of yarn in Bangladesh were $1.65 and $2.20 per kg, respectively, on 16 August. At the same time, the prices in Pakistan were $1.21 and $1.34, respectively.
Abdullah Al Mamun, vice-president of the Bangladesh Textile Mills Association (BTMA), said the information provided by the owners of the terry towel mills on the price of yarn was incorrect.
As there is an increasing buying pressure, there may be exceptions in one or two places, but PIs are being issued in line with the production price.
Fazlul Haque, managing director of Israq Spinning Mills Limited, however, said the price at which cotton is sold after adding import costs and other costs is not irrational. “If imports from Pakistan were profitable, then everyone would import. But no one imports.”
Spin mill owners said the price of cotton – the main raw material for yarn – has been rising since the outset of the coronavirus. In the last eight months, it has increased by 50%. As a result, the price of yarn has also increased.
Zaber & Zubair Textile Fabrics Ltd, the country’s leading home textile exporter, imports cotton from abroad and manufactures it in bonded warehouses.
Rashed Mosharraf, executive director of the company, said, “In spite of being a cotton importer ourselves, we are not being able to derive that much advantage. The flow of orders has been declining for the last two or three months. Then, how can those who only do stitching make any profit?”
Mentioning that the price of yarn is also increasing in other countries due to an increase in cotton prices, he said the price of cotton in Bangladesh, however, is increasing at a higher rate.
He noted that due to the massive devaluation of Pakistan’s currency, the country’s exporters are getting more benefits than exporters in Bangladesh.
According to industry insiders, the yarn used in making terry towels is basically made by mixing some virgin cotton with cotton waste, which is relatively low grade. Denim clothing is made from yarn made by mixing a little more virgin cotton with the same cotton vest, which is relatively more expensive, they added.
They went on to say that due to the recent yarn crisis, many textile mill owners are making denim yarn instead of terry towel yarn. As a result, the supply of terry towel yarn in the market has been declining.
This has led to the terry towel yarn crisis and the rise in its price, so thinks Khandakar Abdul Muktadir, former chairman of BTTLMEA.
He told TBS that the amount of yarn required by terry towel manufacturers is not manufactured in the country. “Due to this, the price of yarn per kilogram of yarn is supposed to be 4-5% higher in Bangladesh as compared to other countries, but now the gap is 30-40%. Even then it is not available.”
In this situation, he demanded minimising existing complications regarding yarn imports and withdrawal of the existing tariff.
