Expensive yarn turns more orders into more liabilities for clothing exporters
After securing export orders three to six months ago, Bangladeshi apparel exporters are now struggling to break even thanks to recent price increases for cotton yarn used to make T-shirts and jeans.
“When we got the orders in July-August, it was beyond our wildest imagination that the price of yarn would go up that much,” Shahidullah Azim, vice president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told The Business Standard on Saturday.
He said more expensive yarns would drive many of the apparel makers down as the export orders would eventually turn out to be bank liabilities.
Bangladesh imports cotton mainly from Africa, India, the USA, Australia and Uzbekistan. Local spinners produce yarn from the raw material and sell the products to local clothing and textile manufacturers.
Since the beginning of this year, cotton prices have been rising worldwide, which has led to an increase in yarn and fabric prices. Apart from the price peaks in the international market, the country’s dressmakers accuse the local spinning mills of overwhelming them as the global cotton price spiral.
Amid a growing dispute between the two parties, there had been a “good faith” agreement in November that spinners would charge garment makers no more than $ 4.20 per kg for yarn if the international cotton price index fell below $ 1.20 per pound mark remained.
According to the latest US commodity index per pound, cotton prices were $ 1.10 on December 3rd, down from $ 1.20 on November 9th.
However, Sheikh HM Mustafiz, director of Cute Dress Industry Ltd, said they have been buying yarn for $ 5 to $ 5.10 per kg in the past few weeks.
Mustafiz, whose knitwear departments produce high quality export items, also found that they are now paying more for other apparel raw materials such as dyes, chemicals and apparel accessories.
According to BGMEA, some of their member manufacturers have withheld yarn purchasing due to the turbulent market.
BGMEA Vice President Shahidullah Azim alleged some of the weirdos have now stopped issuing a Proforma Invoice (PI) – a provisional invoice or estimated invoice that is used to collect payment from the obligated buyer for goods.
Nestled between more expensive yarns and inflated prices from local spinners, the association has asked its members not to take orders without calculating the profit margin.
Rashedul Hasan Rintu, director of the Bangladesh Textile Mills Association (BTMA), believes that many of the clothing manufacturers are having problems with the recent yarn price increases as they received the orders at older prices.
Rintu said the price of yarn is now between $ 4.80 and $ 4.90 due to the recent cotton price hike. Cotton rose to a record $ 1.30 a pound just a few days ago.
However, he hopes that cotton prices will fall in the world market in the coming days as the index shows a downward trend.
Shutting aside the inflated allegations, BTMA President Mohammad Ali Khokon said that yarn prices in Bangladesh are almost the same as in the international market.
Regarding the current yarn market in neighboring India, he said that per kilogram of 30 single count yarn is now $ 4.70-4.80 in India, compared to $ 4.80-4.90 in Bangladesh is equivalent to.
He also denied allegations that he had stopped issuing the proforma invoice.
All fingers pointed to increased demand, a linked supply
Khokon said his company Maksons Group typically needs around 1,814 tons of cotton every month as it has a stock of 4,000 tons.
But driven by a surge in demand, he said the company had opened letters of credit (LCs) for 9,000 tons of the raw material and most shipments are now stuck in different ports.
âIn general, cotton from the USA comes to Bangladesh via the port of Shanghai. However, due to a lack of shipping lines bound to Bangladesh, the cotton delivery went to the Malaysian port of Klang. We don’t know when the shipments will arrive at Chittagong port, âhe said.
However, a representative for a leading international shipping company said that ships in Bangladesh typically spend 7 to 14 days in port congestion in the Malaysian port.
In FY21, Bangladesh, the second largest exporter, generated around $ 39 billion in goods exports, of which over $ 31 billion was in clothing. The country also ranks second in terms of cotton imports, as it imported over 8 million bales of cotton in the last fiscal year, mainly from African countries.
Md Ruhul Amin Sikder, Secretary General of the Bangladesh Inland Container Depot Association (Bicda), said container shortages had decreased due to the supply chain disruption caused by the pandemic.
“In the past two to three months, about 50% of the crisis has gradually subsided,” he added.
Shafiqul Alam Jewel, director of the Bangladesh Shipping Agents Association, repeated the same thing.
He said, “If the virus situation doesn’t get worse, the shortage of containers will go away completely in the next few months.”
While reports of US port congestion are still not encouraging, the folks who work in logistics services here are hoping for good days.
However, a Bloomberg report said yesterday that the bottleneck in the U.S. supply chain is months away from resolving as the busiest port complex of Los Angeles and Long Beach kept nearly 100 container carriers waiting outside of official range. The average waiting time for a ship increased compared to the previous month by one week to 20.8 days on Friday.