A woman handles machines at a spinning mill in Narayanganj. Spinning millers are facing tough time due to a declining demand for locally made yarn. Photo: STAR
The ongoing global recession has caught up with the country's yarn industry with a substantial fall in its local and export demand and the piling of a huge amount of unsold yarn.
Presently, the Tk 2,700 crore spinning mills of the country are struggling with an inventory of 1.5 lakh tonnes of yarn worth Tk 1,500 crore that millers failed to sell for a demand decline and a deluge of comparatively low cost yarn from India.
"The local knitwear and woven industries have already reduced their consumption of yarn due to their low demand resulting from lower orders," said MA Awal, former president of Bangladesh Textile Mills Association (BTMA).
"The global recession has started playing havoc with yarn industry. Local industries buy yarn 2-3 months earlier before they start exporting their products. We are now buying lower amount of yarn that means export will also be low after 2-3 months," said MA Baset, second vice president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA).
Sector people said the local knitwear and woven industries are opting for yarn import from India instead of collecting from local market due to low costs of Indian yarn stemming from significant devaluation of Indian rupee and sinking cotton price on the global market.
International media reports said cotton prices declined on the global market recently due to a sapped global apparel consumption and reduction of Chinese cotton import for the financial meltdown in the US, Europe and Japan that created a chain effect across the world.
"Global cotton use will total 115.24 million bales in the year through July 31, down from 122.69 million a year earlier and the biggest drop since at least 1960 as India, Pakistan and Turkey buy less," said a Bloomberg report.
However the report also said global cotton prices will begin to increase soon due to low cultivation of non-food crops on the back of lower demand.
"On an average, prices of yarn decreased between 57 cents and 58 cents in every pound on the Indian market in recent months and that is the main reason behind the increase of yarn import from India," said Abdus Salam, managing director of Radiance Knitwear Ltd.
Now the price of 30-count yarn varies from $2.25 to $2.30 in India that was between $2.80 and $2.90 a few months ago, while the price of the same local product now ranges from $2.55 to $2.60," said Salam, also a director of BKMEA.
Presently the local spinning mills are capable of meeting 100 percent demand of the local knitwear sector and 75 percent demand of woven.
Industry people said local knitwear and woven industries find it viable to buy yarn from local sources if their prices are at best 15-30 cents lower than the prices in India.
But on an average per pound yarn price in local market is now 40-60 cent higher than its cost in Indian market. That is why presently the local yarn consumers are fulfilling their demands through importing from India.
"Recently I bought 60 tonnes of yarn from India. If I bought it from local market, I would have to pay an additional $20,000," said a local textile mill owner.
BTMA President Abdul Hai Sarker said India's domestic cotton production, currency depreciation and recession bailouts are contributing to keeping yarn prices at lower levels.
Now Indian exporters get 48 to 49 rupees against the dollar, which is around 10 rupees more than they got a few months ago, said Sarker.
"It seems that Bangladeshi currency is now strong compared to the currencies of many countries in the world as their currencies have depreciated recently," Sarker said, demanding that the government should give yarn exporters Tk 5-Tk 6 incentive since exporters are losing competitiveness due to the strong taka against the dollar.
About the import of cotton from India, he urged the government to strongly monitor the land ports so no-one can hide import-related information or manipulate the duty-free yarn import facility for the export-oriented garment industries.
The government withdrew a ban on yarn import through land ports in 2008, which was imposed in 2001.
Executive Director of Centre for Policy Dialogue (CPD) Mustafizur Rahman said competitiveness of locally produced yarns was undermined due to depreciation of Indian rupee, Indian government's stimulus packages against recession and the benefits India enjoys being a cotton producing country.
Terming the present situation in yarn sector by and large an impact of global recession, he said the government should sit with the sector people and take fiscal measures to tackle the situation.
"Banning yarn import through land ports may not be a solution to the problem," he added.
The sector people said any financial collapse in the sector will create domino effect in all other major sectors of the country including banking, insurance, transport and power.
The local yarn producers are losing competitiveness due to Indian currency depreciation and the import of Indian yarns through land ports, Commerce Secretary Feroz Ahmed said, adding that BTMA met Commerce Minister Faruk Khan recently to talk about the issue.
Talking about any measures to save the sector he said, "It is the responsibility of National Board of Revenue to take any decision about import of yarn through land ports or impose any additional duty."kawsar