Spinners in losses, blame low demand, smuggling

Highlights: 

• Being forced to stockpile yarn amid a downturn, spinners are incurring an average $0.70 loss per kg
• Smuggling of yarn from neighbouring countries, duty-free import by weavers' associations and high electricity and gas prices added more woes, textile millers said
• Apparel makers said they have reduced the purchase of yarn or fabric due to low orders from buyers

A steep decline in demand for readymade garments amid a global economic slowdown has triggered a downturn in the yarn market, resulting in huge losses for spinners in Bangladesh.

According to insiders in the sector, almost all spinning mills have accumulated yarn stockpiles due to reduced sales. As a result, they are not only unable to make a profit but also have to bear an average loss of $0.70 per kg.

In addition, there have been allegations of smuggling of yarn from neighbouring countries.

Again, there are allegations that a significant quantity of yarn is being imported duty-free in the name of weavers' associations, but instead of reaching the intended beneficiaries, it is being sold in the open market. This practice is believed to be exacerbating the woes of textile millers.

On top of everything, the recent increase in electricity and gas prices has created additional pressure on entrepreneurs in this gas-intensive industry.

Meanwhile, some of the textile mills listed on the country's capital market have reported a decline in their earnings.

In such a situation, the Bangladesh Textile Mills Association (BTMA) held an emergency meeting last week.

Several leaders who were present at the meeting expressed concern about yarn being smuggled into the country and its stockpiles. In addition, the trade body is collecting information about stockpiles from mill owners.

Mohammad Ali Khokon, president of BTMA, told The Business Standard, "After collecting the information, we will hold a press conference on the matter."

"While there is a large amount of yarn in the market that has come from abroad, the import volume is not that much. We plan to meet with officials of the Customs Bond Commissionerate office of the National Board of Revenue (NBR) on this matter," he added. 

Additionally, he mentioned that the price of yarn has decreased due to a decline in demand and added, "The cost of processing every kg of yarn from cotton is resulting in a loss. Currently, the prices of cotton and yarn are almost equal."

Md Fazlul Haque, managing director of Israq Spinning Mills Limited, told TBS, "Even running at 50% to 60% capacity, a lot of yarn is stocked up. Orders have dropped by about 35%."

He said that the price of yarn is continuously decreasing due to reduced demand, with spinners having to count a loss of $0.70 per kg of yarn (30 counts) on average.

No good news in sight in the coming months

Spinning mill owners said that they are not seeing any signs of improvement in the slump in orders.

"The yarn market is unlikely to improve till next June," said the BTMA president.

People related to the clothing sector say that they do not have enough buying orders in their hands. That is why they have reduced the purchase of yarn or fabric.

Fazlul Hoque, managing director of Plummy Fashions Limited, a Narayanganj-based knitwear manufacturer, told TBS, "There is no sign of the order situation improving in the next three to four months."

"If our exports are less, usually the sale of yarn will decrease and that is what is happening now," added the former president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).

According to the Export Promotion Bureau (EPB), exports of readymade garments fell by 17% in April compared to a year ago. Garment exporters say that this trend of export decline may continue in the next three to four months.

A declaration of raw material usage is the way to understand the trend of garment exports in the next two to four months.

Md Shahidullah Azim, vice president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told TBS that this declaration is now 25% less.

Why losses amid falling cotton prices

According to data from ICE Futures, cotton prices have fallen by around 26% over the last year. Besides, prices were almost stable for the last six months. On Thursday, the price stood at $0.82 per pound.

Explaining the reason behind incurring losses amid a decline in cotton prices, Khorshed Alam, chairman at Little Star Spinning Mills Limited, told TBS that in most cases, cotton bookings are to be made three months to one year in advance. Those who had booked earlier are now counting more losses.

"If cotton is booked at current rates, the C&F price per pound (up to arrival at Chattogram port) will be slightly more than $1. But in the last six months or so, the price was at $1.42 per pound," he added.

Mahmud Hasan Khan Babu, managing director at Rising Spinning Mills Limited, told TBS, 75% of cotton is bought at booking or index prices. The rest are bought from the spot market.

He calculated that yarn is currently being sold at a maximum of $3.15 per kg. But the cost of production is close to $4. The loss is about $0.70 per kg.

The recent hike in gas prices has also increased losses for entrepreneurs, the spinners said.

A senior official of Envoy Textiles Limited told TBS, "Earlier, the monthly gas bill of the company was Tk4 crore. Now Tk8.5 crore will have to be paid for using the same amount of gas."

However, the spinning mills made good profits last year when cotton prices skyrocketed due to the rising demand for garments as the pandemic began to wane.