Raw material prices may soar, BTMA fears

Reduced production of cotton, the main raw material for readymade garments (RMG), and prolonged distribution time due to crisis of ships and containers may lead to a supply crunch, fears the Bangladesh Textile Mills Association (BTMA).

"The supply crunch in effect may trigger prices of raw materials, including yarn and fabric, to soar," said the association President Mohammad Ali Khokon.

Laying out the current situation over the supply of raw materials, Khokon, during a media call on Thursday, asked the RMG owners to expect a shortage of cotton supply around March and April.

However, the RMG owners said they beg to differ on the reasoning of the BTMA.

"The issues over the raw material supply, including vessel crisis, has been persisting for the past one and a half years. We have been spending extra to cope with this crisis and have been doing business accordingly. We have no idea what is new that might cause more supply disruption," Md Fazlul Hoque, former president of Bangladesh Knitwear Manufacturer & Exporters Association (BKMEA) told The Business Standard.

Expressing concern over the BTMA comments, he said, "It could very well be some trick before hiking prices, I do not know."

Explaining reasons behind an expected supply crunch of cotton, BTMA chief Khokon said, "Textile mills are supposed to keep a 3-month stock of cotton. But, we are currently uncertain over the availability of cotton. Previously we received cotton within three months of opening the letter of credit (LC), which now takes twice as much or even more than that."

Then there are issues of making less shipment than stipulated in LC, crisis of vessels and increase of ship payment, which are also hindering supply, according to the BTMA.

As there are no deep seaports in Bangladesh, products are brought here in feeder vessels from motherships stationed in Sri Lanka, Singapore, Malaysia and China.

BTMA chief said, some shipping lines are reluctant to send ships to Bangladesh due to various problems including lengthy processing time at our ports and customs.

"The overall procedure takes 7-15 days, which is 4-5 days in Vietnam and India," he said.

Due to all these reasons, and the crisis of feeder vessels, an extra four to five cents per pound of cotton is spent.

He also called for alleviating the feeder vessel crisis, which according to him is caused due to syndication of a few private agencies, which are responsible for the feeder vessel management.

He pointed out that the supply of cotton in the current marketing (August-September) year has been declining, adding that cotton production in India has declined by 4% and they will also have to import cotton this time as there is demand. Australia has recorded the lowest cotton production in 37 years.

Khokon, also the owner of a leading textile mill in the country, said the price has already risen by 20 cents per pound compared to India.

According to BTMA, 80 million bales of cotton were imported in the last fiscal year 2020-21, but this year it will reach 90 million bales as demand continues to grow.

He also raised issues including the loss of textile mills due to illegal marketing of duty-free yarn in the local market, problems with non-issuance of certified organic cotton imported from India, and high tariffs on imported man-made fibre as part of product diversification.

He said, "Entrepreneurs are ready to embrace the changes of the Fourth Industrial Revolution. But inadequate policy support and logistical support from the government, poor port infrastructure, inadequate utility facilities are taking us backwards."

He fears that the expected $2.5 billion investment in the textile sector will be jeopardised due to these reasons.

For the record, there are about 13 million spindles in the textile sector in the country, of which about 7 million produce raw materials for export. Entrepreneurs are going to inject the $2.5 million keeping in mind the increased demand for exports.

In the case of imports under the Export Development Fund (EDF), industrial owners get the benefit of LC up to a maximum of $30 million in the banks for a fixed period. However, due to the recent doubling of import time and increase in import cost, LCs are not being opened according to their requirement. The BTMA president demanded that the limit be increased by another $10 million to $40 million.