Unstable dollar, power disruptions see industries pinching pennies

Unstable dollar rates at the Bangladesh Bank and private banks, alongside crippling power cuts, have put the country's manufacturing sector in a fix as they still have no idea how to make up for the losses caused by these.

Companies are finding it difficult to even open a new letter of credit (LC) to import raw materials in the face of depleting inventories.

Besides, unstable power supply is also increasing operating expenses as many units are being run by generators, which is adding 30% extra costs to the gas and electricity bills.

These two challenges add to an already volatile situation rife with skyrocketing freight charges, disrupted supply chains, and soaring input costs driven by the Russia-Ukraine war.

Jamuna Group, one of the largest industrial conglomerates in the country, is now having to bear additional 20% business costs due to unstable dollar rates and ongoing power shortage.

Talking to The Business Standard, Mohammed Alamgir Alam, the group's director for marketing, sales and operations, said, "We have suspended some long-term expansion plans at the Habiganj industrial park and others due to the current uncertainty as we now see 20-30% higher costs in raw material imports."

He said there was no scope to increase product prices so as to maintain competitiveness, adding that the focus was now on minimising costs through increased efficiency.

On a more positive note, he said there were no plans for any job cuts but they would instead look to slash expenditures on cars, transport, electricity and other areas.

Mohammed Amirul Haque, managing director and chief executive officer of Premier Cement Mills Limited, highlighted the problems with opening LCs.

"We opened an LC at a rate of Tk94 per dollar. After two weeks, when we submitted documents at the bank, the government had fixed the rate at Tk96, but we paid Tk106."

He wondered how the manufacturing sector would bear the additional amount, saying, "We do not have the capacity to absorb this extra charge and it is not possible by adjusting products prices either."

If the government does not provide support to meet this additional cost, industries will not survive, he added.

Dollar dilemma hits where it hurts

Banks are also now shying away from opening LCs. 

Some large private commercial lenders have stopped opening import LCs without the permission of their managing directors.  

Furthermore, the inter-bank exchange set by the Bangladesh Bank verbally remained ineffective due to the large difference from the market rate.

Many banks are not opening LCs for raw material imports, considering the prevailing situation, Premier Cement's Mohammed Amirul Haque said, adding that his factories have raw materials to run for 40 days only.

KSRM Group's Deputy Managing Director Shahriar Jahan Rahat said the steel industry was facing 25% additional costs due to LC settlement at a higher rate of the dollar.

He said they opened the LCs for importing scraps for the steel industry at Tk86 per dollar, but now they had to pay Tk105-107.

On the other hand, he said, raw material imports had almost stopped while the group had to maintain a three-month inventory.

"Raw material shortage may create another crisis," he said.

He further said transferring the increased cost on to product prices was not possible at the moment, adding that freight rate hikes – which already rose by 12% during the pandemic – were also hurting.

"In the past three years, our total cost increased above 35%, which would take a decade to adjust," said Shahriar.

He said the selling price of steel is about Tk84,000 as per booking, while the production cost is above Tk1 lakh.

Every penny matters

Meghna Group, which has more than half a hundred factories, including interests spanning steel, cement, ceramics, FMCJ, energy and others, is also not insulated from the dollar crisis despite its impressive resume.

Taslim Shahriar, general manager of Meghna Group of Industries, said expenditure, unless necessary, was being cut but there were no plans to trim jobs.

He said after opening the LC for the import of raw materials, one has to pay more money at the rate of 15-20%. Adding freight charges and increase in transport cost, prices of almost every product is lower than in the global market. As a result, the product has to be sold in the country's market at a loss, he said.

Eleash Mridha, PRAN Group managing director, said they were trying to cut production cost by minimising product size and also increasing prices in some cases. 

Besides, the group is also facing power shortages at its Habiganj industrial park, which has hampered its production, he added. 

Zaved Akhtar, managing director of Unilever Bangladesh Ltd, said they hadn't noticed a marked drop in sales, but due to inflationary pressures, consumers were switching to more low-end products. 

The supermarket chains were also making less than before.

Many consumer brands are offering less margin to retailers nowadays, instead of transferring all the soaring costs to consumers for the sake of sharing the cost pressures across the value chain, said Shaheen Khan, the CEO of supermarket chain Meena Bazar.

BSRM Head of Finance Shekhar Ranjan Kar said the turnover for the industries might be still higher due to price hikes, but the selling quantity might not be as high.

Profitability is shrinking as companies find no way to reduce costs of production. Many raw material prices began slowing down in the international market, but depreciating taka ate the benefits away, he said.

"Saving a single penny matters now; we are tirelessly bargaining with banks and suppliers," he said.

On the energy front, the current crisis has renewed the desire to shift to renewables.

Humayun Rashid, a director of engineering, power-energy, apparel conglomerate Energypac Group said the energy crisis taught the eco-conscious group a lesson and it is going to use at least 30% renewable energy at all its factories by the end of 2030.

Except for the alternative energy investments, his company, like others, is not planning for any capital expenditure right now, while optimising all the ongoing projects.

Apparel waits another litmus test

Sparrow Group MD Shovon Islam said apparel exporters are waiting to face a big hurdle in the coming months as their product demand has been reducing, creating a shortage of orders. 

He also mentioned that a shortage of gas and electricity supply is also increasing their production costs, with some exporters offering forced discounts and facing up to three months of deferred shipments. 

"If this situation continues till next January it may impact jobs in factories which do not have full capacity orders, mainly those which expanded capacity during the overflow of apparel orders.

"Minimising additional costs, strengthening marketing capacity and diversifying markets are the only ways for survival of the garment industry", he added.     

Even if orders were to increase, the energy crisis would also need to be mitigated soon.

Arshad Jamal Dipu, chairman of Tusuka Group, said they are facing shortage of gas supply to run a 20-tonne capacity boiler.

"Due to shortage of gas supply, we are running this boiler using diesel fuel to meet shipment deadline, which has cost us about Tk5 crore in the last two months," he added. 

He also mentioned that this additional cost was not calculated when they confirmed the orders.

Pharma in the radar, too

The country's pharma sector is highly dependent on imported raw materials, so unstable dollar rates means more costs than before.  

Team Pharmaceuticals Ltd MD Abdullah-Hil-Rakib said due to rising dollar rates, they were paying about 30% higher to import API. 

SM Saifur Rahman, MD of Active Fine Chemicals Ltd, a local API manufacturer and exporter company, said they are also facing up to 30% price hike to import their raw materials. 

He said pharma manufacturers have long-term contracts with API manufacturers, it is not possible to shift suppliers on a short notice.

Ceramics production drops to half 

Due to the gas crisis, the ceramics industries' production has come down to half its average despite having orders for full capacity. 

 Mamunur Rashid, CEO at Artisan Ceramics Ltd, said if the losses, which have mounted for months, continue then there would be no option but to close the factories. 

Md Shamsul Huda, vice-president at Bangladesh Ceramics Manufacturing and Exporters Association and managing director of Great Wall Ceramic, said there was an at least 50% reduction in production. 

"We kept our factory closed for 15 days in June owing to low gas pressure. We are somehow running the factory on a single shift only," he said.

Not easy to take wings either

Due to jet fuel price hikes and unstable dollar rates, airlines are facing challenges to take flight. 

At the same time, the state-owned airline has pivoted to offering discounts instead of price adjustments. 

Novoair MD Mofizur Rahman said since March this year the number of domestic passengers has been decreasing, adding fuel prices have increased about 171% from January 2021.

Fuel price is about 50% of airlines total operating cost, he said.

"Now we are facing uneven competition in domestic markets as state-owned airline Biman has not adjusted the additional fuel cost with ticket prices."

In some cases, they are offering discounts which will ruin private operators, the Novoair MD feared.

The government increased jet fuel price to Tk106 per litre in May this year, the highest yet, up from Tk48 a litre seen in December 2020.