Exporters in raw material crunch

Export-oriented businesses now fear that they might miss shipment deadlines as their sourcing of necessary raw materials are now facing disruptions as some banks are refusing to open LCs on account of dollar shortages and non-settlements of previous loans taken from Export Development Fund (EDF) with export proceeds, according to industry people.

On top of it, a number of exporters now see their borrowing from the EDF inadequate because raw material prices have gone up in the global market and the US dollar continues to gain against taka, a dozen of entrepreneurs and business leaders told The Business Standard.

As a result, timely deliveries for ordered goods have become uncertain, they noted. 

The looming raw material crisis will deal a serious blow to apparel makers who are already grappling with buyers' requests for delayed shipments, said Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

"Buyers might either cancel orders or seek discounts if we fail to meet shipment deadlines," he also said.

Businesses dealing with the domestic market are now facing a problem as well. Local market suppliers are dealing with banks who are unwilling to handle their LCs because they pay in local currency and they fear a raw material crisis in the not too distant future, Saleudh Zaman Khan Jitu, managing director of NZ Tex Group, told TBS. 

Textile millers need to have a stock of raw materials for at least four-five months to keep production humming and keep apparel manufacturers well supplied, he said, adding, "So, we have to open an LC every month. If we cannot now source raw materials, our supplies of yarns and fabrics to garment manufacturers will be disrupted, which will lead to a delay in shipments hurting their business."

Bangladesh Textile Mills Association (BTMA) has made a complaint to the Bangladesh Bank that many banks are unwilling to open import LCs under the EDF, deferred payment and UPAS systems.  

Monsoor Ahmed, additional director and CEO (in Charge) of BTMA, said a few of their members, including Noman Group, informed them that pointing out the ongoing dollar crisis, banks are reluctant to open LCs against imports of essential raw materials, such as cotton and fibre, which are needed to feed export-oriented garment factories.  

They have sought the central bank's intervention in this regard, he added.

Seeking anonymity, an official at Noman Group said, "A leading bank is refusing to open an LC on various excuses. We can continue production for the next three months with the cotton we now have in our stock."
BKMEA executive president Mohammad Hatem told TBS that they have a good number of work orders but they cannot open LCs.

"We might lose our buyers if we cannot source necessary raw materials right now."

Contacted, Mohammad Sirajul Islam, central bank spokesperson and also an executive director of the Bangladesh Bank, told TBS that the Bangladesh Bank cannot force any banks for opening LCs. It is totally up to the bankers and customers.  

"If we get any specific allegation against any banks about an intentional delay in opening LCs, we will look into it," he noted.

In the meantime, exporters find themselves in another trouble as a few buyers are demanding that product prices be lowered in line with the local currency devaluation, Shams Mahmud, managing director of Shasha Denim, told TBS. 

"That is why some of us cannot cash in on the taka devaluation benefit," he said, fearing that global cotton prices might spiral out of control because its production might fall caused by drought in many countries and floods in Pakistan.  

In the last one year, cotton prices have doubled. Its price in international futures markets remained at $1.2-$1.6 per pound on Tuesday.

But yarn prices stood at $4.50 per kg in the local markets, according to BTMA.

The ongoing fuel crisis does not offer any hope for the manufacturers. The gas crisis continues to hurt textiles and apparel industries in Gazipur and Narayanganj. Some textiles saw their production come to a halt.

Saleudh Zaman Khan Jitu, a vertical woven textile manufacturer in Bangladesh with five units, said his monthly minimum operational costs stand at Tk30 crore even if production remains closed, while his current monthly income has come down to Tk6 crore owing to the serious gas crisis.

Officials at Titas Gas Transmission and Distribution Limited said lower supplies from the national grid is the main reason for the gas shortage.

Engr Md Haronur Rashid Mullah, managing director at Titas Gas, told TBS that the current situation only can be improved if they receive a higher volume of gas from the national gas grid.

Apart from this, the crisis can also be minimised if power plants take a lesser volume of gas, which is only possible during winter," he added.

At present, Titas Gas has a daily demand of 1,800 million cubic feet (mmcf) daily to feed its 28.74 lakh consumers. But the largest gas distribution company is now receiving only 1,400mmcf from the gas transmission company.

At the same period last year, Titas gas used to receive around 1,700mmcf of gas when the country used to import around 600mmcf gas from LNG sources.

But now, only 480mmcf of LNG is being injected into the national grid. Subsequently, the total gas supply in the country dropped to 2,792mmcf, which was 3,011mmcf in September last year.  

Moreover, the ongoing power outages have put manufacturers in a tight corner. Al Shahriar Ahmed, managing director of Indet Group, said their cost for diesel-run generators has gone up to Tk18 lakh a month, while they spent Tk30 lakh in the entire year of 2021.