Bangladesh Textile and apparel industry has been suffering a lot due to covid 19. Another issue put the hot water to the whole business along with pandemic impact is the uncontrolled price hike of yarn. There is a common conception among industry is that, BTMA has the wheel to control price. Many people agreed with it and also some people strongly denied it saying misconception. Recently Team Denim Focus met President of Bangladesh Textile Mills Associations, Mr. Mohammad Ali Khokon and talked about the ongoing issues of yarn price. Mr. President elaborately discuss on the issue and cleared out the most common misconception about raw material price regulation.
Statement of Mohammad Ali Khokon about global raw material price:
The textile market is a global market where we trade internationally, import products from various countries, and export products to multiple countries. Here the change in the price of any product/raw material occurs globally. No single mill or association has the power to increase or decrease the rate of products or raw materials. The rate of cotton, the rate of yarn, etc, are set globally. So, the price of yarn has not only increased in Bangladesh but also has increased globally.
The apparel sector of Bangladesh is already in a sound state, and so the textile industry of our country is also in an acceptable state. The more the apparel sector of our country will become strong, the more the textile industry will be developed. I am personally connected with both the garments industry and the textile industry. And from that experience, I would say no single factory or association has the power to control the price of textile materials.
Some textile personalities may say or blame that the price hike of yarn has been done occurred because of some associations or spinning mills, which is not right. Some factory owners in our country show an unrealistic price sheet which is too much cheap than the market price to the buyers due to unhealthy competition, without understanding the cash flow, balance sheet, international price-sheet of raw materials. Though the raw materials will be nominated & the price of the raw materials will be paid by the buyers.
Bangladesh does not produce cotton. Where our demand is 85 lakh bales of cotton, we only produce 1.5 lakh bales. (1 bale of cotton = 490 pounds, according to International Standards). Mainly we source yarn from our neighboring countries such as India, China, Indonesia, and Pakistan. In these countries, the price of yarn is not less than our country, even in some cases higher than our country. So, importing yarn from these countries, bearing the importing cost, port fees, customs fees &, etc. would not have been possible for us, unless our buyers are paying the price. The garments industries basically work according to the CM (Cost of Making).
Here I would like to give an example, differentiating between sourcing yarn from local spinning mills and importing yarn from neighboring countries. Suppose, a local factory has to complete an order for which 1000 tons of yarn is required. When the local factory will source yarn from local spinning mills, it can source yarn gradually. First, the factory can buy 100 tons of yarn, within 3-4 days that yarn will be transferred to the dyeing section. After that, the local factory can again buy 100 tons of yarn. Thus, the work of the local factory will be started as soon as the buyers have given the order, and also lead time will become shorter. On the other hand, when the local factory will import yarn from neighboring countries, it has to import the complete amount of yarn (1000 tones) together, only when the complete amount of yarn (1000 tones) is prepared. And so the work of the local factory has to wait until the yarn import is completed. Again, importing yarn comes with variable costs (port cost, transfer cost, etc.) and variable lead time (port holidays, port delays, country situation, etc).
During the pandemic Covid-19, the global economy has been shattered, we have visualized huge ups & downs of the price of a commodity. During the pandemic, we bought per pound of organic cotton at 58 cents US, now we are buying that at 1.90 US$. Again the non-organic cotton, we bought per pound at 60 cents US, during the pandemic, of organic cotton, now we are buying that at 1.02 US$. The yarn we sold during the pandemic at 2.60 US$ per pound, now the price of that yarn is around 4 US$ per pound. So, while the price of cotton has increased 100%, the price of yarn has only increased 40-60%.
According to the law of economics, when the demand for a product is more than the supply of the product, then the price of that product increases. In the same way, when the supply of a product is more than the demand of the product, then the price of that product decreases. Now, the demand for yarn is high, so the price is high. In recent years, the supply of yarn was more than the consumption, so the price of yarn was low.
During the pandemic situation, people are not buying woven or denim much. As they are staying at home most of the time, so they are preferring comfy clothing- knit fabric. As a result, the demand for knit clothing has raised & the price of knit clothing has increased. In the same, the demand for knit fabric has raised & the price of knit clothing has increased; the demand for knit yarn has raised & the price of knit yarn has increased, and finally, the demand for knit raw materials have raised & the price of knit raw materials have increased. On the other hand, the cultivation of cotton is not sufficient. Where the world population is increasing, demand is increasing but cotton cultivation & cotton cultivating land is decreasing.
No business can be mentioned as a monopoly. When we trade in the international market, everything is connected with the demand, supply, and consumers. Bangladesh could not earn 16-17 Billion US$ from the knitting sector if there were no spinning mills in our country. Again, the spinning sector could not sell their yarns so easily, if the knit sector of our country were not strong. This is how the garments sector & spinning sector both are connected & dependent on each other.
In the recent covid-19 situation, our association had a conversation with the spinning mills. For the last 10 years, the spinning mills of our country are facing multiple difficulties. All the spinning factories of our country is at a loss, for the last 3 years. My factory went through the loss of 29 crores taka. Even some large factories went through around or more than 100 crores taka. Some mills have lost their business, some mills are not getting any bank facilities. If we had the power to control the price of raw materials or yarn, we would have not gone through this vast amount of business loss.
As the president of BTMA, I would say that the Textile market is a global market, is an open market. Every country is a share-holder of this market. None can control this market. So, we should not blame any organization or spinning mills owners for the price hike of yarn. We need to understand that the price of every textile material is set globally and we cannot control the textile market.