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Yarn price hike puts RMG makers in the soup

They claim BTMA has increased prices ignoring previous resolution
Arifur Rahaman Tuhin
19 Dec 2021 00:00:00 | Update: 19 Dec 2021 13:24:05
Yarn price hike puts RMG makers in the soup
— Reuters File Photo

At a time when garment exporters have started to recover from the Covid-19 pandemic fallout, yarn price hike by textile mill owners has put them in fresh trouble executing the existing work orders.

Apparel exporters claimed that yarn manufacturers had increased prices breaching a previous resolution between textile mill owners and garment exporters.

The previous resolution between apparel and textile manufacturers said yarn prices would be fixed through negotiations if per pound cotton price went beyond $1.

“Yarn manufacturers violated the resolution, raising the price from $4.2 to $5 illegally and illogically. We even asked them to negotiate, but they did not respond,” Mohammad Hatem,

executive president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), told The Business Post.

He said, “We fixed goods prices based on per kg yarn price at $4.2, but spinning mill owners raised prices without any announcement. Now buyers do not want to adjust prices.”

President of Bangladesh Textile Mills Association (BTMA) Mohammad Ali Khokon could not be reached for comments on the matter.

Kutubuddin Ahmed, chairman of Envoy Group and former president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) who also owns textile mills, said the problem was solvable.

“All problems will be solved if BGMEA and BKMEA have a discussion. They urged me to have a discussion on yarn prices a few months ago, and we found a solution after the meeting. If they call me now, I will agree to be the mediator again,” he said.

Asked why he was not doing this on his own, he said, “I cannot as I do not hold any official post in BTMA, BGMEA, or BKMEA.”

Per pound cotton price was $0.59-0.7 before Covid-19, but prices began to increase due to tight supply in the international market. Prices have been up almost 80 per cent since December 2019, according to a recent report of The Economist.

Per pound cotton price reached around $1.2 on November 17 from $1 on September 28, and it was a new record in the last decade, according to Nasdaq.

Nasdaq data showed cotton prices began to decline on November 22 and reached $1.02 per pound on December 2. But per pound cotton is currently sold at $1.06-1.08 in the international market.

Industry insiders said per pound cotton was sold in the international market at $0.9-0.96 in August, and spinning mill owners hiked per kg yarn price to $4.5 or more. They also changed prices every day, even of that of pre-booked yarn.

BGMEA and BKMEA asked BTMA to have a discussion to solve the issue. They arranged a meeting on August 21, where Kutubuddin mediated. The meeting adopted a resolution.

As per the resolution, textile mill owners will get $4.2 for per kg 30-carded yarn if cotton prices range between $0.85 and $1 per pound in the global market. But if cotton prices go past $1 per pound, the three parties will sit again to fix new price limits.

Apparel industry insiders claimed that cotton prices crossed $1 on September 28 and BTMA at the time assured them that yarn prices would not increase till November 30. BTMA also said new prices would be fixed through discussions after November 30.

“But they increased yarn prices to $5 per kg without any notice and violating the resolution,” Fazlee Shamim Ehsan, vice-president of BKMEA, told The Business Post.

He said, “Per pound cotton price is currently $1.06 and remains the same since early December. So, how did spinning mill owners increase per kg yarn price by $0.6?”

Prices not changing by big margin shortly

Global cotton production increased during the Covid-19 recovery period. Production is expected to see an 8.6 per cent growth to 26.52 million tonnes in the current fiscal year, which was 24.42 million tonnes in FY21 and 26.43 million tonnes in FY20, according to global media reports. But at the same time, global cotton demand increased due to clothes export growth in Bangladesh, Turkey, and Vietnam.

That is why stakeholders expect global cotton prices to come down marginally within a short time. But they fear prices may not return to normal levels before 2023.

Hatem said, “Prices will decline from next January. But there are little possibilities that prices will return to the pre-pandemic levels.”

Apparel makers seek partial shipment permission

Considering the current yarn price situation in the country, apparel exporters are now forced to import yarn from India, where the price is low. But due to the bar on partial shipment imposed by the National Board of Revenue (NBR), they cannot import it easily and within a short time. Apparel exporters said they had talked to the authorities concerned several times and requested them to withdraw the bar but had not received any response.

They also said per kg yarn price is $3.8-3.9 in India at present, which is much cheaper compared to the local market.

“If the government gives us partial shipment permission, we can import yarn easily and quickly. I talked to the NBR chairman a couple of days ago, and he told me to go to him along with BGMEA and BTMA officials. But the problem is BTMA does not want partial shipment permission,” Hatem said.

Kutubuddin said, “If the government thinks partial shipment is helpful for this sector and the country, they should give permission.”