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Bangladesh : Global price surge of cotton hits local knitwear sector (September 17, 10)

Bangladesh : Global price surge of cotton hits local knitwear sector

Knitwear sector has started to feel the bite of the recent price surge of cotton as costing of its products is shooting up due to higheryarn price.

The price of yarn per kilogram (kg) increased by about 10 per cent in a month following a steep rise in prices of raw cotton and its short supplies in the international market.

The price hike in the international cotton market compelled the local textile mills to charge higher prices than before as mill-owners shifted a large part of the burden on account of increased cotton prices onto the domestic users of yarn in the local knitwear as well as readymade garment (RMG) sector.

But the yarn users alleged domestic price-hike is comparatively higher than that of the international market.

"Yarn prices have shown an upward trend and today (Thursday) the millers ask over $4.0 per kg which was in the range between $3.6 and $3.7 a month back," First vice president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Habibur Rahman told the FE.

Knitwear manufacturers face difficulties in negotiating any hike in the price of the finished products with foreign buyers and if the upward trend continues, it will have a negative impact on the sector, he said.

Mr Habib alleged that textile millers used higher international cotton prices and its short supplies as well as energy crisis as the excuses for charging exorbitant prices.

"Some millers are also hoarding yarn to sell in higher price in the future," he further alleged.

However, the local textile mill owners did not agree with the contention that they were taking any undue advantage of the overheated raw cotton market in the overseas.

One such source claimed it is difficult for most other industrial operators to assess the impact of the heavy cost-push factors, relating to procurement of raw cotton under the given international market conditions.

The total annual yarn consumption in the overall knitwear and garments sector is between 1.2 million and 1.4 million tonnes and 20 per cent of it is imported.

Local manufacturers mostly produce low cost knitwear and other garment products including basic T-shirts, and the cost of yarn account for about 50 to 60 per cent of their total costing.

Mr. Habib of BKMEA stated they buy yarn through letters of credit to get cash incentive facility.

Meanwhile, Bangladesh Textiles Mills Association (BTMA) chairman Abdul Hai Sarkar said they are compelled to hike the price as the raw material prices increased in the international market.

"We used to buy cotton at 60 US cents per pound but it has now shot up to $1.2 now," he said.

A kg consists of 2.2 pounds and a manufacturer can produce 800 to 850 grams of yarn from one kg of cotton.

The yarn price was about $2.5 per kg in September last year but it has increased by 50 per cent so far this year, Mr Hai said.

"Local price will fluctuate according to the that of the international market but it is likely that the price will continue to rise," he said.

It is a normal phenomenon that demand falls due to price-hike but if the local knitwear and readymade garments manufacturers get enough foreign orders, the demand is likely to remain constant, he hoped.

Bangladesh procures cotton from India, the US, the Commonwealth Independent States (CIS) and West African countries. The South Asian nations already stopped exporting the primary product since April.

"The cotton export ban by India is scheduled to be withdrawn on October 1 but the Indian government has extended the deadline by 10 more days," Mr Hai said.

About 30 per cent of the annual total cotton procurement at about 4.5 million bales comes from India and if the export ban continues, it will push the price up, he feared.

A bale consists of 480 pounds.

Floods in Pakistan is one of the major reasons of the price-hike in the international market as the country has lost 25 to 30 per cent of its cotton production due to the natural disaster, the BTMA chairman said.

There are about 360 textile mills in the country employing about a million people. Out of the mills, about 250 are export-oriented ones and the sector involves an estimated investment of about Tk 350 billion to Tk 400 billion.

The overall garments industry, the biggest export sector in the country, earned about $12.5 billion in the last fiscal. Woven sector earned $6.01 billion and knitwear sector earned $6.48 billion in the 2009-10 fiscal.

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