Garments manufacturers in Bangladesh have breathed a sigh of relief as yarn prices started easing after rising to a high level.
Imports of yarn, a key raw material for readymade garments, the country's top export product, have been on the rise in recent times due to some price advantages compared to buying from the local market. It has also resulted in price decreases in the local market.
Besides, harvesting of the main raw material, cotton, has started from this month in various producing countries, which will continue till next December, even though the price of cotton has not started to decline yet.
According to garment manufacturers and textile millers, the price of 30 count yarn, which is widely used in the country's garment industry, rose to $4.20-4.30 per kg over the last two months. But now it has dropped to $4.10-4.15 per kg.
Garment industry insiders expect that the price will go down further because the price in the Indian market is on the decline, too. In India, the price of the same yarn rose to $3.8 per kg, but now it is being imported at $3.6 per kg.
Local spinning mills supply 80% of yarn for knitwear garments and about 40% for woven garments.
The price of yarn started increasing considerably in the local market in January this year as an effect of the rising prices of cotton, the main raw material for yarn, in the international market.
Besides, as sales of garment products in Europe and America, the main export market of Bangladeshi garments, continue to increase, a lot of orders have started coming to Bangladesh.
Garment manufacturers claim that local spinners have continued to make super profits by raising prices abnormally through cashing in on increasing demand. However, textile millers have always denied such allegations.
Mohammad Ali Khokon, president of Bangladesh Textile Mills Association (BTMA), told The Business Standard, "Although the cotton price has gone up by 47% in the last eight months, we have not increased the yarn price that much."
The two sides had been at loggerheads but finally, the millers agreed not to sell 30 count yarn at over $4.25 per kg if the cotton price remains $1 per pound.
In the meantime, large garment factories have started importing yarn from several countries, including neighbouring India.
Narayanganj-based MB Knit Fashion Limited has imported 350 tonnes of yarn from India in the last two months. The company is set to open an LC soon to import some more blended yarn from Indonesia.
"Import cost from India is 60-70 cents less than the price in Bangladesh. That's why most of the big players are now focusing on imports instead of local sources," Mohammad Hatem, managing director of the company and first vice-president of Bangladesh Knitwear Manufacturers & Exporters Association (BKMEA), told TBS.
"Because of this, the price of yarn in the local market is on the decline. The price will go down further as global cotton harvesting has already started and good harvesting is expected this time."
According to the latest Bangladesh Bank data, yarn imports rose 82% in July.
It is possible to purchase yarn from local spinners within a day of opening an LC, while it takes 2-8 weeks to import the product from the international market.
On the other hand, a 4% cash incentive is available for garments exported by using local yarn, which is not available in the case of imported yarn.
Fazlee Shamim Ehsan, chief executive officer (CEO) of Fatullah Apparels, thinks that importing yarn is still profitable.
He told TBS, "30 count yarn imported from India is now $3.60 per kg while the price is $4.15 in Bangladesh. Due to the price difference, importers are benefited even if they don't get cash incentives."
Speaking to TBS, Md Fazlul Hoque, managing director of Israq Textile Mills Limited, said prices are falling slightly as imports have increased, mainly due to a balance between local demand and supply.
In addition, at least four other textile entrepreneurs have reported that yarn prices are falling in the local market.
What does cotton harvesting prediction say?
Bangladesh's cotton imports were once dependent on India but now the picture has changed. In fiscal 2019-20, Bangladesh imported 7.5 million bales of cotton, 37% of which came from African countries. In addition, half of the total imports came from the markets of India, CIS (Commonwealth of Independent States) countries, Australia, and the United States.
The cotton harvesting season is from September to December. There are different views among people concerned about the harvesting of cotton in the current season.
Mohammad Hatem said, "We have observed in the past if there is a cotton crisis in one year, the next year the production is higher. In this way, the price will go down this time. Besides, there are already hints of good harvesting in Pakistan and Brazil."
But cotton importers say it is not yet time to comment on cotton harvesting.
Md Ataur Rahman, head of the supply chain (cotton and yarn) at Envoy Textile, which uses 1,600 tonnes of cotton per month, told TBS, "We cannot make a comment right now as to what the price of cotton will be. For this, we have to wait another 2-3 months."
Md Fazlul Hoque believes that the price of cotton will be higher this year too.
"Meanwhile, the cotton crop has been damaged due to natural calamities in India's Madhya Pradesh," he said.
Although China is the top cotton-producing country in the world, it was also the top importer in fiscal 2020-21, followed by Bangladesh.
The top exporters at the time were the United States, Brazil, India, Australia and Benin.