The capital-intensive spinning sub-sector is in a double whammy as sales of yarn dropped amid a price fall that stemmed from lower demand from weavers and knitters, industry people said.
Moreover, the spinners have already cut their production capacity to 30-40 percent as the stockpiling of unsold yarn is spiraling everyday at the factories, they said.
The spinners are counting loss as they are now forced to sell yarn at $3-$3.40 per kilogram, which was sold at $7 per kg during March and April, they added.
Such a mismatch between the demand and supply has been created in the spinning sub-sector when the local cotton importers and spinners could not gain from the international trade of cotton.
Bangladeshi spinners were in a hurry to sign contracts for importing cotton at $2.20 per pound from international market last year and this trend continued until April this year, as analysts feared that cotton price will rise further and stocks will run out.
Cotton price hit a record high at $2.52 a pound in April, but nosedived to $1-$1.3 or even below one dollar now, the importers said.
“I imported 800 tonnes of cotton at an average price of $2.20 per pound, when the yarn price was at $7 per kg in the local market. Now, the stockpile of unsold cotton at my factory is 650 tonnes as the demand declined drastically,” said Razeeb Haider, managing director of Outpace Spinning Mills Ltd at Gazipur.
He said there had been a speculation in the market during February-March that the world cotton stock will run out soon due to a poor harvest worldwide.
“We bought cotton when there was a speculative market. During such a volatile situation, India, the second largest cotton growing country, imposed a ban on export in April last year,” Haider said.
The ban was relaxed for a brief period in November and it was re-imposed in December, he said.
The ban continued for a long time and now the Indian government not only withdrew the ban on cotton export, but also introduced a 7.67 percent subsidy on export of both cotton and yarn, he said.
“As a result, we are facing a lot of challenges,” he said. “Previously, I used to produce 17.5 tonnes of yarn per day, but now I lowered the capacity to 6 tonnes,” he added.
Echoing his views, Company Secretary to Noman Group Nurul Afsar said many importers could cancel contracts, but many could not and incurred losses.
“We have a number of units and projects, and so we could minimise the loss,” he said.
Asif Hanif, a director of Hanif Spinning Mills Ltd, said the entire industry is suffering from the sudden price fall of cotton and yarn in the local and international markets. “Weavers and knitters like to import cheap yarn from India and Pakistan, rather than using local yarn,” he said.
Jahangir Alamin, president of Bangladesh Textile Mills Association (BTMA), said relaxed rules of origin under the generalised system of preferences by the European Union from January left a bad impact on the country's primary textile sector.
Previously, Bangladesh's primary textile sector, which has so far fetched Tk 30,000 crore in investment, had been shielded by strict rules of origin of the EU for decades, he said.
Now, the local garment exporters enjoy 12.5 percent duty-waiver on export from EU for the products made even from the imported fabrics and yarn, he added.
The import of yarn increased by 18.21 percent in the January-June period this year, compared with the same period last year, according to data from the National Board of Revenue.
During the same period, the import of woven and knit fabrics rose by 51.18 percent and 293.06 percent respectively, which is alarming for the country, Alamin said.
At present, the unsold yarn stockpile reaches 2.5 lakh tonnes, with a current market price of the stock at Tk 9,000 crore, he said.
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