Cotton price fall ushers in hope among RMG exporters

Despite low work orders and negative earnings, Bangladeshi apparel exporters remain optimistic as cotton prices are declining in the international market.

According to Nasdaq, per pound cotton in the international market never exceeded $1 since September 19 this year while booking prices were $0.83 on Monday.

On the other hand, local apparel manufacturers booked per kg yarn at $3.7 on Monday, which would fall to at least $3.2 once cotton shipments reach the country.

Industry insiders, however, said most of the existing work orders were rescheduled due to the global economic crisis and the yarn required to complete those was purchased at high prices.

That is why exporters would start enjoying the benefits at the end of this year, but low prices would help them receive more orders, which would reduce production costs, they added.

Bangladesh Garment Manufacturers and Exporters Association (BGMEA) President Faruque Hassan told The Business Post the world is now facing high inflation, which is reducing consumers’ purchasing power.

“This has caused export orders to fall, but low cotton prices in the global market will help us receive more orders.”

Bangladesh Textile Mills Association (BTMA) Vice-President Md Fazlul Haoque said, “We have cotton and yarn in stock for at least the next five months due to low export orders and less production caused by the ongoing energy crisis.

“To get benefits of low cotton prices, the government should ensure uninterrupted power and energy supply to industries. We will then be able to reduce production costs. Otherwise, there is little possibility that yarn prices will be reduced.”

Cotton-based items account for around 74 per cent of Bangladesh’s apparel exports and the country meets more than 99 per cent of cotton demand through imports, according to the BGMEA. For this reason, apparel manufacturers are heavily dependent on international market prices.

Before the Covid-19 pandemic, per pound cotton booking price was $0.76-0.78. At the end of March 2020, the price went down to $0.5.

But cotton prices in the global market started rising at the end of September 2021 due to high demand and low supply. Local spinning millers increased per kg yarn prices to $4.4 at the time.

In this situation, the two apex bodies in the apparel sector – the BGMEA and Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) – held a meeting with BTMA. The meeting set per kg yarn price at $4.2, provided per pound cotton price is below $1 in the international market.

But this did not last long because cotton prices in the international market were increasing day by day, peaking at $1.58 per pound on May 2 this year.

For this reason, per kg yarn price in the local market reached up to $5.4, and apparel manufacturers found themselves under huge pressure because production costs rose.

Apparel exporters then started meeting their yarn demand through imports, especially from India. This was because prices in India were around $0.6-0.9 less than that in the local market.

However, after Russia invaded Ukraine in February this year, high inflation hit the world, especially the Western nations. This reduced the purchasing power of Western consumers, resulting in low cotton demand in the international market.

Inflation in the European Union and Eurozone reached 10.1 per cent and 9.1 per cent respectively in August this year, according to Eurostat. The agency at the time forecast inflation in the 19-country Eurozone would rise to 10 per cent in September.

BKMEA Executive President Mohammad Hatem said falling cotton prices would reduce production costs, which would help exporters receive more orders.

But buyers have started reducing merchandise prices, saying cotton prices are going down, he said.

Per kg yarn price should be $3 considering the booking price of per pound cotton in the international market now but local yarn manufacturers are selling at $3.7, he explained.

“If local manufacturers do not reduce yarn prices, we will not be able to take advantage of falling cotton prices in the global market,” Hatem added.