Many manufacturers have chosen to cease production rendering many jobless, and hindering recovery from the pandemic
Soaring price of cotton on top of the increased shipping cost and fuel price hike triggered by the Russia-Ukraine war is adding to the challenges of the country’s RMG exporters.
As the buyers are reluctant to adjust their prices taking the added cost into account, the exporters find themselves on the horns of a dilemma.
The situation is not only true for Bangladesh, but for other Asian countries as well, reports the Reuters.
The report said, many manufacturers in India and other countries have chosen to cease production leading to many workers becoming jobless, which in effect is hindering the economic recovery from the pandemic.
Due to excessive rain in India and drought in the US state of Florida, the production of cotton has depleted leading to its price to increase as much as two times in some countries in the span of one year.
The Reuters story reads, a near doubling in benchmark cotton futures to 11-year highs, hard on the heels of a spike in freight and fuel prices, is clobbering Asian apparel makers while their global retail customers are reluctant to soak up the extra costs.
Losses have mounted for garment makers in Asia, among the region’s top employers, with some smaller units suspending operations, rendering thousands jobless, undermining a recovery from the pandemic and posing a fresh challenge for policymakers already battling high inflation.
To remain viable, some yarn and garment makers are even replacing cotton with cheaper synthetic fabric.
Fazlee Shamim Ehsan, managing director at Fatullah Fashion Ltd, told The Business Standard, rising cotton prices, shipping costs and other costs have pushed up our production costs. But, we are not getting the price from the buyers according to that.
He said that due to inflation in Europe and America, which is the main export market of Bangladesh, the export orders in the coming months are also declining compared to previous months.
Meanwhile, the textile mill owners of the country say even if they buy cotton at a higher price, they are not able to sell it at a higher price. On top of it, the uncertainty over the price of cotton remains.
Md Fazlul Hoque, vice president of Bangladesh Textile Mills Association (BTMA) told The Business Standard, currently one pound of cotton costs £1.65 to bring to Chattogram port. Yarn produced from this cotton will cost $5.5 per kg. But now we are selling yarn at $4.80.
In addition to the increase in shipping costs, not receiving cotton shipments on time is another issue, he said adding, “The cotton shipment scheduled in January is yet to begin.”
Bangladesh Bank is not approving the hedging of cotton to overcome such a situation. If approved, it would reduce the risk a lot.
The Reuters story added, an uncertain outlook for demand from Europe amid the Russia-Ukraine war has added to the woes of apparel makers in Asia – home to the world’s top garment exporters, China and Bangladesh.
In India, world’s top cotton producer, several small apparel makers are struggling to fulfil orders from three months ago, when cotton prices were around a third less than current levels.
“Many small units have stopped taking new orders,” said Ashok Juneja, president of India’s Textile Association.
India’s cotton prices have more than doubled in a year after rains hit harvest.
Global prices surged 70% over the period, scaling the highest since 2011 in May, with analysts predicting more gains amid drought damage to output in top exporter the United States and a recovery in China’s demand as Covid-19 curbs ease.
In a double whammy for garment makers, “buyers are not willing to raise prices”, said Ravi Sam, managing director at Adwaith Textiles, an Indian exporter. “They are also uncertain about summer demand, especially in Europe,” he added.
In southern India, which accounts for most of the country’s textile exports, spinning mills in May decided to stop producing yarn and procuring raw cotton, the South India Spinners Association said.
The shutdowns are hard for industry workers as many were unemployed during Covid lockdowns.
“Nearly 40% of the mills here have been shut since they are financially unviable,” said Duraisami, who goes by just one name and recently lost his job at a textile mill in the southern state of Tamil Nadu.
Like Duraisami, thousands in the area have lost their jobs in May, the state government has said.
Asian garment makers, which also count Walmart Inc and Nike among their customers, rely heavily on Europe and the United States for exports of ready-made garments.
While demand rose in the first quarter as the world emerged from the pandemic, fresh China Covid curbs and higher fuel prices amid the Russia-Ukraine conflict stifled it.
Shipping costs have quadrupled from pre-pandemic levels and global brands are not absorbing additional costs, Rahman said.
“The manufacturers are bearing the burden,” he said.
To cut expenses, some mills are using more synthetic fibre, which can cost $0.60-$1 a pound versus $1.4 for raw cotton.
“From what we hear from the mills in Asia, they are increasing spinning ratios in favour of polyester,” said Rogers Varner, president of Varner Brokerage in Cleveland, Mississippi.
But this swap has limitations given contractual commitments to deliver a certain quality of fabric.
“There will be some replacement … but you can’t just replace something because you don’t want to pay for it,” said Louis Barbera, partner and analyst at VLM Commodities Ltd.
