Spinners not getting ordered cotton as local agents sell it to other parties

On the pretext of supply delay caused by container shortages, a section of local agents of international suppliers have allegedly been selling cotton to parties other than original importers they have sales contracts with.

A sales contract is an agreement between a seller and a buyer. The seller agrees to deliver or sell something to a buyer for a set price that the buyer has agreed to pay. Even if prices of goods go up, the sellers cannot charge extra.

But at least eight local agents were recently found to have transferred cotton sales contracts to other parties for "commercial gains", keeping the importers in the dark.

Such sales anomalies have exacerbated the cotton crisis, industry people allege.

As a result, despite the opening of LCs, local spinning mills are now facing a cotton crisis owing to an untimely supply of cotton as a number of local agents, through whom they placed the cotton import orders to international suppliers, have reportedly sold the key clothing raw material to others.

A number of spinners told The Business Standard that they are not getting cotton shipments even though 3-4 months have gone past since deadlines ended. They are now trying to reach out to international suppliers, but in most cases, there is hardly any response.

To cope with the situation, some spinning mills are having to source cotton locally at higher prices. Cotton price has now increased to $1.65 per pound from $.95 six-seven months ago.

The Bangladesh Textile Mills Association (BTMA) has sent a letter to the International Cotton Association (ICA), expressing its concern over the situation and urging it to take necessary initiatives.

In response to the letter, Bill Kingdon, managing director at ICA, said, "We have seen no evidence of merchants using the shipping delays to gain commercial advantage. The situation is frustrating to all parties." 

Fazlul Hoque, vice-president at BTMA and also managing director at Israq Textile Mills Limited, told TBS, "My 16,000 tonnes of cotton was supposed to arrive at the port last March. But the supplier sent only 1,000 tonnes. I need 4,000 tonnes per month. There is now a severe cotton crisis in the country."

Bangladesh mainly imports cotton from Louis Dreyfus Company, Olam International and Cargill Cotton.

In a meeting at the BTMA office in the capital on Tuesday to decide what to do in dealing with the ongoing situation, several members said some rules of the ICA do not protect the interests of Bangladeshi importers. 

For example, if there is any dispute between buyers and suppliers. The buyers are not allowed to file complaints with any party other than to the ICA.

That is why BTMA is mulling making separate rules, Md Khorshed Alam, chairman of the standing committee on development for local spinning, weaving, dying and printing mills of BTMA, told TBS.

The issue of local agents' selling cotton to other companies instead of providing to importers also came up in the discussion.

A well-known spinner has recently fallen victim to such a fraud. 

Seeking anonymity, the owner of the factory told TBS that they had a contract for sourcing cotton at $.93 per pound, but the agent sold it elsewhere after prices went up. 

After the issue came to the fore, the agent agreed to pay a fine amounting to $8 lakh.

When contacted, denying the allegations, the accused local agent said they cannot sell any importer's cotton to others even if they want to. 

Instead, he blamed shipping lines' unwillingness to carry Chattogram-bound cargoes and feeder vessel and container crisis for cotton shipment delays.

When asked why he agreed to pay the fine, he could not give a proper answer and requested this reporter not to disclose him and his organisation. 

Textile mill owners said two people have already been arrested for selling importers' ordered cotton to other parties. Another is serving his jail term.

Some 8-10 such irregularities have been found, they added. And, those involved are not members of Bangladesh Cotton Association.

Asked if there is any plan to blacklist them, BTMA President Mohammad Ali Khokon, told TBS, "We are reviewing the existing regulations of the commerce ministry in this regard."

Bangladesh imports about 9 million bales of cotton annually, which meets 98% of its annual demand. There are more than 1,500 BTMA member textile mills in the country. Of them, 433 are yarn manufacturing mills.

World Bank forecasts 8.4% rise in cotton production 

The World Bank's commodity markets updates published Tuesday, on the supply side,

global cotton production is projected to increase by 8.4%, led by the world's largest exporters - Brazil and the United States (with shares of about 20% each). Production in China and India, the world's largest producers, is expected to decline marginally due to weather-related challenges. Cotton prices are expected to be nearly 40% higher in 2022, before easing 6% in 2023 as weather-related challenges unwind. 

Cotton prices continued their upward trend that began in early May 2020 to reach an 11-year high in March. Prices have increased in 20 of the past 23 months.