Expensive yarn turns more orders into more liabilities for apparel exporters

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With export orders secured three to six months ago, Bangladeshi garment exporters are now struggling to break even thanks to recent price hikes for cotton yarn – used to make cotton T-shirts. jeans.

“When receiving orders in July-August, it was beyond our wildest imagination that the price of yarn skyrocketed,” Bangladesh Garment vice president Shahidullah Azim told The Business Standard on Saturday. Manufacturers and Exporters Association (BGMEA).

He said more expensive yarns would lead to losses for many garment manufacturers as export orders eventually turned into bank debts.

Bangladesh imports cotton mainly from Africa, India, the United States, Australia and Uzbekistan. With the raw material, local spinners produce yarns and sell the products to local garment manufacturers and textile manufacturers.

Cotton prices have been rising around the world since the start of this year, causing prices for yarns and fabrics to skyrocket. In addition to price spikes in the international market, the country’s seamstresses accused local spinners of overcharging them in relation to global spirals in cotton prices.

In the face of a growing feud between the two sides, there was a “good faith” agreement in November that spinners would not charge garment manufacturers more than $ 4.20 per kg for the yarn if the international index cotton prices remained below $ 1.20 per pound. .

According to the latest US commodity per pound index, cotton prices were at $ 1.10 on December 3, compared to $ 1.20 on November 9.

However, Sheikh HM Mustafiz, managing director of Cute Dress Industry Ltd, said they were buying yarns between $ 5 and $ 5.10 per kg in the past two weeks.

Mustafiz, whose knitwear units manufacture high-end export items, also noted that they now pay more for other clothing raw materials such as dyes, chemicals and clothing accessories.

According to the BGMEA, some of their member manufacturers have suspended the purchase of yarn due to the turbulent market.

BGMEA Vice President Shahidullah Azim claimed that some of the spinners have now stopped issuing a pro forma (PI) invoice – a preliminary invoice or estimated invoice that is used to request payment from the engaged buyer for the goods.

Sandwiched between more expensive yarns and overbilling by local spinners, the association asked its members not to accept any orders without calculating the profit margin.

Rashedul Hasan Rintu, director of the Bangladesh Textile Mills Association (BTMA), believes many garment manufacturers are having trouble with the recent yarn price hike as they received orders at older rates.

Rintu said the price of yarn is now around $ 4.80 to $ 4.90 due to the recent rise in cotton prices. Cotton hit a record high of $ 1.30 a pound just days ago.

He hoped, however, that cotton prices would drop on the international market in the coming days, as the index suggests a downward trend.

Dismissing allegations of overcharging, BTMA chairman Mohammad Ali Khokon said yarn prices in Bangladesh are almost identical to those in the international market.

Referring to the current yarn market in neighboring India, he said the kilogram of single yarn yarn in India now costs $ 4.70 to $ 4.80 which is $ 4.80 to 4.90 $ in Bangladesh.

He also dismissed the charge of stopping the issuance of the pro forma invoice.

All fingers pointed towards sharply rising demand, a chain of supply

Khokon said her Maksons Group business typically needs around 1,814 tonnes of cotton each month because it maintains an inventory of 4,000 tonnes.

But propelled by increased demand, he said the company has opened letters of credit (LCs) for 9,000 tonnes of raw materials and most shipments are now stranded at various ports.

“Cotton usually arrives in Bangladesh from the United States through the port of Shanghai. But due to a shortage of shipping lines to Bangladesh, the cotton shipment went to the Malaysian port of Klang. We don’t know. not when the shipments arrive at the port of Chittagong, ”he explained. .

However, a representative from one of the major international shipping companies said ships to Bangladesh typically face 7 to 14 days of congestion in the Malaysian port.

In FY21, Bangladesh, the second largest exporter, generated around $ 39 billion in merchandise exports, of which clothing items were worth more than $ 31 billion. The country also ranks second in cotton imports as in the last fiscal year it imported over 8 million bales of cotton, mostly from African countries.

Mr Ruhul Amin Sikder, secretary general of the Bangladesh Inland Container Depot Association (Bicda), said the container shortage due to the supply chain disruption due to the pandemic has eased.

“About 50% of the crisis has gradually abated over the past two or three months,” he added.

Shafiqul Alam Jewel, director of the Bangladesh Shipping Agents Association, also echoed the same thing.

He said: “If the virus situation does not deteriorate further, the container shortage will disappear completely over the next two months.”

While reports of congestion at US ports are still not encouraging, those involved in logistics services here are hoping for good days ahead.

A Bloomberg report, however, said yesterday that the US supply chain bottleneck is still far from resolved, as the busiest Los Angeles and Long Beach port complex has kept people waiting. nearly 100 container ships outside the official zone. The average wait for a vessel increased by a week to 20.8 days on Friday compared to a month ago.


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