Bangladesh’s clothing industry is facing a double punch. A shortage of natural gas is making it difficult for local factories to produce yarn, the essential thread used to weave fabric. This has forced garment makers to rely more on imports, which has increased by 13% compared to last year. The data paints a clear picture: in the last fiscal year (ending in June 2024), garment factories imported yarn worth $2.64 billion between July and April, compared to $2.34 billion during the same period the year before. This increase reflects the growing dependence on foreign yarn due to the gas crisis.
However, this increased reliance on imports comes at a cost. Not only does it strain Bangladesh’s foreign reserves due to the ongoing dollar crisis, but it also weakens the value addition of the country’s garment sector. Value addition refers to the extra worth created by local processing, and relying on imported yarn reduces the contribution of Bangladeshi factories to the final product. Recent cuts to government incentives for garment exports may further push companies towards cheaper foreign yarn, potentially hurting the local textile industry in the long run.
The gas supply crisis has become a major hurdle for Bangladesh’s garment and textile industries. These factories typically need a strong gas flow, around 8-10 pounds per square inch (PSI), to operate at full capacity. Imagine needing a good flow of water to run your washing machine – that’s how important gas pressure is for these factories. Unfortunately, the reality is far from ideal. According to the Bangladesh Textile Mills Association (BTMA), gas pressure often drops to a measly 1-2 PSI during the daytime. This significantly disrupts production, which often extends into the night hours in major industrial zones. Think about trying to wash clothes with a mere trickle of water – that’s what these factories are facing. The low gas pressure has crippled production, forcing many mills to operate at a fraction of their capacity. Industry owners report that 70-80% of factories are now running at around 40% of their potential. This is a huge setback, and it’s only getting worse.
Rajib Haider, managing director of Outpace Spinning Mills Ltd., paints a grim picture. He says they’ve been struggling with gas shortages for over a year, leading to a gradual decline in production. However, the situation has intensified in the last month, causing production to plummet even further, below 40% of their capacity. This highlights the urgency of finding a solution to the gas crisis.Then he added, “Despite having orders, spinning mill owners are concerned about meeting supply deadlines. If spinners fail to supply yarn on time, garment owners may be forced to import yarns. “
The impact of the gas crisis goes beyond just reduced production. Rajib Haider, the entrepreneur we heard from earlier, mentioned that these limitations have also driven up costs and reduced the cash flow for factories. This makes it difficult to pay workers their salaries and allowances on time. Imagine a business struggling to keep the lights on – that’s the kind of financial strain many factories are facing.The Bangladesh Textile Mills Association (BTMA) shared additional details about the crisis. According to their president, Mohammad Ali Khokon, some areas are hit particularly hard. These include Tongi, Joydebpur, Sreepur, and several others. These regions are crucial for textile and spinning production, and the lack of gas supply is severely impacting their operations.The garment industry, which relies heavily on textiles, is also feeling the pinch. Apparel exporters acknowledge the challenges faced by their suppliers. Mohammad Hatem, representing the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), highlighted disruptions in both gas and electricity supply. These disruptions significantly affect garment factory operations as well.
He provided a specific example from the Narayanganj area. Before the recent Eid holiday, gas pressure was practically non-existent. While it has improved slightly to 3-4 PSI, it’s still not enough to run all the machinery at full capacity. This lack of power translates to longer lead times, meaning it takes factories more time to complete orders. One consequence of this is that many dyeing factories, a vital part of the garment production process, are only operating at half their capacity. This domino effect across the clothing industry paints a clear picture of the widespread disruption caused by the gas crisis.
A decline in government subsidies has demonstrably propelled the import of yarn.
To make matters worse for Bangladesh’s garment industry, a recent government decision has added another layer of complication. A central bank circular issued in late June slashed the cash incentive for local textile mills from 3% to 1.5%. This incentive was meant to encourage the use of domestically produced yarn. Six months ago, the incentive rate was even higher at 4%. Mohammad Hatem, an executive from the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), explained the additional wrinkle. The actual benefit for mills is even lower, around 1.2%, because it’s calculated based on a portion of the export price.
Here’s the problem: Garment manufacturers pay for the yarn with the incentive factored in, but they don’t receive their own separate incentive until much later, sometimes a year or more afterwards. This creates a cash flow issue for garment exporters. Hatem fears that these complexities will push companies towards cheaper imported yarn. He worries that Bangladesh’s garment industry, known as RMG, could become overly reliant on imports, essentially turning it into an “import-dependent export industry.” This would undermine the government’s goal of promoting domestic production and weaken the overall competitiveness of the sector. Hatem’s statement highlights the urgent need for the government to revisit its policies and find ways to better support both textile mills and garment exporters.
Giant Group, a major player in Bangladesh’s garment industry, is another voice joining the chorus of concern. SM Majedur Rahim, a director at the company, shared their perspective. They typically import high-quality yarn, and right now, it’s 40-42 cents per kilogram cheaper than locally produced options. This price difference is significant, and even if the gap narrows to 20-25 cents, Giant Group says they’ll likely stick with imports.
Rahim explained the current market situation. The price of a common yarn type (30/1 count) used in knitwear has recently dropped to $3.20-$3.25 per kg domestically. However, Indian spinners are offering even better deals, with the same yarn priced at a much lower $2.90-$2.95 per kg. The cost advantage of imported yarn is clear, and garment exporters like Giant Group are naturally drawn to these savings. The Bangladesh Textile Mills Association (BTMA) offers a different perspective though. They argue that when you factor in production costs and the price of imported cotton (a key raw material), locally made yarn can actually be more competitive. This highlights the complex pricing equation at play, and the need to consider all aspects of the production cycle.
BTMA for old gas prices as supply issues continue
The Bangladesh Textile Mills Association (BTMA) has been vocal about the devastating impact of the gas crisis. Last month, they sent a strong message to Petrobangla, the state-owned oil and gas company, highlighting the severity of the situation.Their letter detailed how the gas shortage has crippled factory production. In some member mills, the supply line pressure dropped to near zero. This caused significant damage to machinery and forced entire operations to a halt. Imagine a car running on fumes – that’s the kind of gas pressure these factories were dealing with, and the consequences were dire.
The BTMA also pointed out a broken promise. In January 2023, the price of gas per cubic meter was raised from Tk16 to Tk31.5 with the assurance of a steady gas supply. However, despite paying the higher price, factories never received the expected gas flow. This price hike without the promised improvement in service added insult to injury for the textile industry.Further adding to their frustration, the BTMA, at a press conference in January, called for a return to the previous gas price for textile industries. This request reflects the urgency of the situation. The industry believes a lower gas price would provide some relief until a long-term solution to the gas crisis is found.
Reference:https://www.tbsnews.net/economy/rmg/yarn-import-jumps-13-local-production-chokes-amid-gas-crisis-892851
