Local textile millers have plunged into a triple whammy – falling yarn prices, low gas pressure and a record rise in fuel prices.
To top it all, two new troubles in the form of zone-based weekly closure of factories and a possible rise in power tariffs are now looming over them.
Prices of local yarns, the key ingredient for readymade garments, experienced a 20% fall over the last three months because of slack demand from apparel makers in the face of belt-tightening by consumers amid soaring inflation.
Yarn now costs $4 per kg, down from $5.2 per kg in May. If losses continue this way, entrepreneurs will find it tough to repay bank loans in time, say industry people.
In the meantime, cotton prices have also registered a 14% drop in the last four months. The US futures index now stands at $0.97 per pound, while the spot market C&F price is $1.43 per pound.
New entrants in the textile sector with investments amounting to $3 billion are now worried over the onset of one trouble hard on the heels of another.
Industry insiders say they cannot absorb any rise in production costs amid falling yarn prices.
Khorshed Alam, chairman of Little Star Spinning Mills Limited and former director of Bangladesh Textile Mills Association, told The Business Standard, “Textile mills run 24/7. If the government decides to regionalise the closure of factories once a week, will we get uninterrupted gas supply in the remaining six days?”
“We will suffer losses if we are not provided with required gas pressure in our six-day operation,” he said.
Not many taking yarns
Spinning millers say many apparel makers are not complying with a fixed deadline for opening LCs even after taking proforma invoices because of declining yarn prices.
Moreover, they are not receiving yarns despite opening LCs, and are offering lower than what have been fixed in proforma invoices, they note.
Proforma invoice is the initial negotiation price and quantity on the basis of which the LC is issued in favour of the buyer after a certain period of time. Normally, a buyer has to confirm LC within 7 to 15 days after getting PI.
Md Mosharaf Hossain, managing director at Mosharaf Composite Textile Mills Limited, one of the largest textile mills in Bangladesh, told TBS that he issued proforma invoices to at least five of his buyers in the past one month, but they did not open LCs within the specified time.
Again, a buyer did not receive the goods even after opening the LC, he said.
“They are asking us to lower yarn prices by 10-20 cents even after receiving proforma invoices,” he pointed out.
Mohammad Ali Khokon, president of Bangladesh Textile Mills Association (BTMA), told The Business Standard, “I have already received such complaints from many spinning mills.”
Seeking anonymity, another BTMA leader said, “We will soon meet with two associations of apparel owners over this issue.”
Around eight or nine months ago, the situation was completely different when yarn prices were very high. At the time, spinning mills were reluctant to supply yarns to apparel makers even after proforma invoices had been issued for them.
Mohammad Hatem, executive president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), told TBS, “It is true that yarn prices fell by $1 per kg in the last three months, which put spinners in trouble.”
“The demand for clothing in our main export market has decreased by 20%. Again, as yarn prices are falling, foreign retailers and brands are placing work orders lower than they actually negotiate,” he said.
“That is why our garment owners open LCs for a lower number of raw materials,” Hatem, also owner of Narayanganj-based MB Knit Fashions Ltd, also said.
Elaborating, he said one of his buyers in Europe gave an order sheet for $1 million worth of apparel goods after finalising a $5 million work order. The buyer is holding on to the remaining $4 million worth of order sheets, hoping for a further fall in yarn prices – which is unethical.
“We can do nothing in this case,” he also said.
According to sources, spinning mills now have stocks of three to four times more yarns than usual owing to reduced demand.
Bangladesh is the second top cotton importer in the world. In 2021, it imported about 8.2 million bales of cotton. Textile millers expect cotton imports to reach 9 million bales this year.
According to BTMA, there are more than 1,500 textile mills in the country, including spinning, fabric, dyeing-printing and finishing, which are members of the organisation. There are about 1,000 more mills that are relatively small.
According to BTMA, the total investment of textile mills in the country is about $7 billion.
