Bangladeshi Spinners Face Challenges
March 12, 2009 In September of last year, Benzir Ahmed of Shaju International and a member of the Cotton International Editorial Board wrote us bemoaning the condition of the spinning industry in Bangladesh. Because of India’s ban on import duties and the escalating price of cotton, the spinners faced a critical situation. Their troubles have now worsened, having been intensified by the global economic downturn; though the crisis originated in developed countries, its adverse impacts started to be felt in economies of many developing nations. The depreciation of their currency against the U.S. dollar, the over production of yarn and the economic crisis’ consequential slowing of global demand has had a powerful effect on the Bangladeshi spinning industry.
Bangladesh has become a market for Indian yarn, Ahmed says, resulting in local spinners sitting on large stocks of unsold yarn, totaling 0.15 million tons. “Unsold yarn stock is increasing everyday. Over 30 factories have been closed already. Many factories reduced their production below half of their capacity,” Ahmed explains. “If this situation continues, two-thirds of our 341 spinning mills will be forced to close.”
Encourage Government Action
While trade leaders are encouraging the government to take action, no changes have yet been instituted. “2.5 million workers are scared of losing their jobs,” Ahmed says. According to him, in the current climate and with so much money invested into the spinning sector, mill owners are simply looking to keep their factories running; profit is not an immediate goal. “The garment sector might be affected later if spinners fail; it would be risky if garment producers were forced into full dependency of Indian yarn,” Ahmed adds.
“The last democratic government banned importing Indian yarn through land ports, mainly the Benapole land port. Only the Chittagong sea port was open for Indian yarn, with freight charges included in the price, the imported yarn was not cheaper than Bangladeshi yarn. Now, the 30/1 count Indian yarn price is 2.10 USD per kilogram, where our yarn price is not less than 2.35 USD per kilogram,” he says.
Before 2008, Bangladeshi spinners were supporting domestic knit yarn producers fully, and supplying 76% of inputs to woven yarn producers. “But now all are consuming Indian yarn in their factory because of its availability at a lower price,” Ahmed says. The Bangladeshi spinning industry has been forced to develop while facing various difficulties, such as very limited availability of electricity, a low gas supply, negative political activities and worker strikes. Additionally, Ahmed says, they must pay the Industrial Bank 16% interest, whereas their main competitors, India and Pakistan, only pay 4% to 9%.
“There is not enough land in Bangladesh for cotton cultivation, so spinners must only depend on imports. But our neighbor, India, consumes their own cotton for raw materials. From November to February, Bangladeshi spinners import the new Indian cotton crop for producing knit yarn. After facing these types of troubles, it is really hard for Bangladeshi spinning mills to maintain a stand in the market. Our government should take urgent action to ban imports of Indian yarn through land ports again to keep the spinning sector alive in Bangladesh,” Ahmed says.
However, the deceleration in global commodity prices does provide Bangladesh with an opportunity to take advantage of the crisis-driven market dynamics. The challenge here will be to quickly translate the falling global prices into reduced domestic retail prices; this could result in being more competitive in the global market. Foreign investors, though cautious, will be looking for good and safe investment opportunities; Bangladesh could be seen as an option for such investments. The demand for low-end products is likely to sustain during the global crisis, giving the an opportunity to increase market share.
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