Exporters now brace for continued spike in Chinese raw material prices

Bangladesh's exporters now brace for a bigger blow to its raw material sourcing from China as the ongoing gas and electricity crisis in the world's second largest economy is expected to continue for at least four more months with the advent of winter when consumption peaks.

Domestic cost pressures, fuelled by energy shortages, have already halved factory outputs in China, eventually forcing its suppliers to hike product prices by up to a 100%.

Bangladesh, which depends on China for about 60% of its raw materials required for export sectors, is not shielded from the impacts.

The country's export industries have started feeling the heat as they are having to import industrial inputs from China even at high costs to meet increasing demand for products flowing in from buyers.
Bangladesh's exports registered double-digit growth in the last three months, which saw over 60% year-on-year rise in October, according to the Export Promotion Bureau (EPB).

Only months ago, global economists had banked on China's strong growth momentum propelling the global recovery. Now, China's V-shaped economic rebound is fading faster, posing a new headwind for an uneven global recovery, says Bloomberg.

The latest cost burden on Bangladesh industries comes on top of exorbitant global freight charges and recent spike in domestic transportation cost owing to fuel price hike.

On the other hand, shipping vessel shortages have also put Bangladeshi entrepreneurs in a tighter spot over maintaining lead time and export competitiveness, according to the industry people.
Fazlee Shamim Ehsan, chief executive officer at Fatullah Apparels Limited, told The Business Standard, "Raw material prices have doubled over a month, and shipments that would take a week now take more than a month."

For example, Chinese dyes-chemicals now cost $22 per kg, while it was only $13 per kg a month ago. 

India could be an alternative sourcing country for some items, but Indian exporters charge $2-$3 higher than China's and they are now charging more capitalising on the ongoing crisis, he added.
This situation may not be normalised before March next year as China's power shortage might not end before the advent of spring, Ehsan said.

Sayeed Ahmad Chowdhury, director (operation) at Square Denims Ltd, said, "The way prices of raw materials increased is unbelievable for Bangladeshi importers, but we still have to procure at very high prices to maintain export commitments." 

Liquid indigo now costs $8.20 per kg, which was $4.80 per kg just two weeks ago, he also said. 

Md Shahidullah Azim, vice-president at Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told TBS that freight costs rose to $12,000-13,000 per 20-foot container from $2,500-$3,000 a year ago.

On top of it, their production cost will go up further by 5% because of 23%-30% rises on transport cost, container handling charges and other services, he added.

Kutubuddin Ahmed, a former president at the BGMEA, said costs of inputs from China have added to woes of textile and apparel industries, which have already been hit hard owing to shipping vessel crisis and rising petrochemical prices in the global market.

But it is now not possible to shift to another country to source such raw materials and capital machinery owing to pricing issues as China is a more competitive sourcing hub for the globe, he added. 
Kutubuddin said if the situation continues for a long time, alternative suppliers will be developed.

Bangladesh, also one of the largest importers, has an opportunity to develop some backward linkages for manufacturing synthetic yarn, woven fabrics and chemicals, etc, he added. 

"We have to go for a joint venture initiative to set up such facilities as currently, we do not have technological knowhow for the purpose," he noted.

Imports from China totalled $13.55 billion in the last fiscal year, merchandises include industrial raw materials and capital machinery, apart from a host of consumer goods.