YARN PRICES TOUCH THE SKY

Share on facebook
Facebook
Share on twitter
Twitter
Share on pinterest
Pinterest
Share on linkedin
LinkedIn
Rising yarn prices on the international market have the stakeholders in the RMG industry sceptical about future growth forecasts

Since independence, Bangladesh has come a long way in terms of development and growth. One sector that has supported the phenomenal economic progress of the country is its RMG (Readymade Garment) industry. The sector is responsible for more than 80% of total export earnings for the nation and is the biggest export generator as well. It has played a crucial role in building our nation and continues to be a promising catalyst to push the country towards an HDC (Developed) status.

 

Due to the sector’s importance, it is highly problematic that raw material prices for RMG are exponentially increasing, making manufacturers uneasy everywhere. The rise has come as a response to the global cotton price hike that has hit a decade high, creating a trickle-down effect on the entire industrial chain. Reports from the BTMA (Bangladesh Textile Mills Association) have warned that spiking prices of imported yarn could raise prices of locally produced yarn by up to 15% and would, in turn, raise prices of RMG exports. The BTMA cautioned manufacturers to take this hike into account before negotiating anything with foreign buyers if they wish to make a profit for their wares, rather than incurring losses due to ignorance.
In August 2021, both textile millers and apparel exporters agreed to fix the upper limit of the 30 combed and 30 carded yarn prices at USD 4.5 and USD 4.2 per kilo, respectively, given that the index remained between 85 to 100. They also unanimously agreed that yarn prices could increase or decrease depending on whether the point index shoots above 100 or drops below 85. Unfortunately, the global cotton index rose sharply from August to October last year, hitting the highest (107-point index) in 10 years. BTMA president Mohammed Ali Khokon had then warned RMG manufacturers that if the index remains above 100 points, yarn prices cannot remain as agreed with the BGMEA (Bangladesh Garment Manufacturers and Exporters Association) and the BKMEA (Bangladesh Knitwear Manufacturers and Exporters Association), and they may see hikes of at least 15%. It is especially concercing considering that local yarn manufacturers have no control over fixing cotton prices, an international commodity.
While essentially being an agricultural crop, cotton enjoys being an industrial raw material, gaining ‘white gold.’ It has more global demand than supply, making it susceptible to price fluctuations. While this is one reason for the upward spiralling prices of yarn, another reason is that textile mills are facing gas shortages making it all the more challenging to operate on total capacity. The additional cost is considered as millers set the final yarn prices, so it is no surprise that prices would increase as they did. Prices were also rising because of the covid situation and the world’s solution to keeping economies running- the work-from-home formula. People working from home demand more comfortable clothes made primarily of spun cotton. As formal events are less and less in the scene, artificial fibres are losing to natural fibre in competition and have aided in the price hike. Finally, India and the USA did not produce their usual amount of cotton due to rainfall in the last year, pushing supply down further and marking the final nail in the coffin.
Some measures to ease the way for RMG manufacturers were proposed by apparel and home textile makers to the government authorities in the form of permits to allow the import of cotton, yarn and fabrics through all land-border ports and partial shipment of those imports. The import of cotton bales was 7.5 million in 2019-2020, 8.2 million in 2020-2021 and is feared to hit 9 million bales this fiscal year as apparel orders for the global markets increase, lockdowns are lifted, and economies reopen in the west. It is worth noting that since December 2020, cotton prices have risen by a staggering 47% globally. While demands for cotton yarn have increased by 22%, prices have risen by 37% internationally.
The BTMA president Mohammed Ali Khokon has written to spinners to stop increasing prices any further as knitters, weavers and terry towel makers are suffering. The BTMA president also advised all yarn makers that sold to export-oriented manufacturers that the PI, an invoice sent by a seller to a buyer in advance of goods, should be held suitable for 15 days instead of the previous 7. He responded to the request of allowing the import of cotton and yarn through different land entry points by saying that entryways are open for shipment, mainly from India. Still, only the Benapole border has the infrastructure to take on the bulky yarn shipments. Regarding partial shipments, Khokon wondered if that would lead to over-importing of yarn, threatening the local yarn industry, costing the government a good chunk of their revenue. As a result, currently, partial shipments are only being allowed through the Chattogram seaport.

Local knitters, garment manufacturers and terry towel makers were the prime customers of yarn and are the ones who are suffering the most due to the sheer bulk of their orders. Even as Khokon mentioned that the price has been on the rise ever since September 2020 and that the situation should have been handled better, it is true that the BGMEA needs to be bailed out if the sector is to retain its business relations and international buyers. The producers are also exploring locally produced yarn, but the unaffordability of the raw material makes it difficult for them to pursue this route.
The RMG sector is the leading cash cow for the economy of Bangladesh. The fight between global cotton prices is crucial for Bangladesh, and they must come out on the winning side. While this is a sticky conundrum, a compromise must be reached internationally if the currently floundering RMG sector is to hit the ground running- or rather, spinning.

Share:

Share on facebook
Facebook
Share on twitter
Twitter
Share on pinterest
Pinterest
Share on linkedin
LinkedIn
On Key

Related Posts

COMPUTE, CREATE, CELEBRATE

An overview of a four-day computer science event organised by AIUB Computer Club. AIUB CS Fest 2024, presented by the Office of Student Affairs and

LOOKS SO REAL

The exciting possibilities of OpenAI’s text-to-video AI model, Sora. Just a year ago, an AI-generated video featuring a grotesquely deformed approximation of Will Smith enthusiastically

HUMBLE LEGACY

For over 170 years, the legacy firms that make up PricewaterhouseCoopers International Limited, a multinational professional service brand of firms, operating as partnerships under the

LEADERSHIP LESSONS FROM A CXO

As a CXO, you are at a level where you have tough contenders and practical challenges. What could separate you from the rest? Here are

Leave a Reply

Your email address will not be published.