Price Pressures, Politics, U.S. Economy Influence Bangladesh Cotton Market
January 27, 2009 Bangladesh’s cotton knitwear and wovens sectors have without a doubt seen incredible growth in the last five years as the country’s private spinning and textile sector has met the European and U.S. demand with capital investment and increased use of technology. This growth should continue in the future, but several factors are causing slower or stagnant growth in the short term.
Higher prices for raw cotton in recent months, without a tandem rise in price received for the yarns and fabrics for export, is hurting already thin profit margins. A recent downturn in export markets – led by the U.S. recession – is without a doubt impacting the market. Political issues are further complicating the sourcing of raw cotton. Tesco and Marks & Spencer have explicitly told Bangladeshi ready-made garment manufacturers that they will not buy textiles that contain Uzbek cotton because of labor conditions. Uzbek is the largest supplier of raw cotton to Bangladesh, but this effect on the market remains to be seen. In any case, India has been a growing supplier of cotton to Bangladesh, and the U.S. is looking for a chance to regain its market share. Growth is around the corner, but the first half of 2008 could see only modest gains. Here is what a few industry insiders are saying about the current Bangladesh cotton and textile situation.
Sheikh Mohammad Ali
Managing Director, Royal Inspection International
The trend is still toward growth, but the problem for this year is that the purchase price of cotton is still very high. The manufacturing cost of the yarn is not very compatible with the selling price, and the manufacturers are in a very bad, very awkward position. So they are purchasing the cotton very slowly right now.
For the last few months, it has been difficult to sell yarn, and they are trying very hard to clear out their inventories because they cannot keep it for a long time. But the growing of the textile industry, the trend of setting up new spinning mills, is still going on, and I think it will continue.
In the beginning of every season, spinners feel very well with price and quality, and normally by the end of the crop year, the price of the cotton becomes high and the quality of the cotton isn’t as good. But at the beginning of this year, the quality is good but the price is too high, and I don’t know how long this will continue.
Mehedy Hasan
Owner and Managing Director, The One Cotton
The unexpected rise of raw cotton price in the international market and the current unpleasant political situation of Bangladesh has badly hampered our local yarn market. Also, in our export markets, the retail consumers’ purchasing capacity has decreased, as the prices of all necessary things are very high, but their income hasn’t expanded.
Even with the current market, spinning mills are in a very good position for growth, and there are new spinning mills every month. So we are very hopeful that our textile sector would take a vital part of the world market within the next 2-3 years. Some spinners are expanding their production capacity day by day; for example, one spinner’s current cotton consumption capacity is 500 metric tons per month, but by June 2008, the mill will need 1400 metric tons.
Mills import cotton from Uzbekistan, central Asia, India, the U.S., Pakistan and many countries of West Africa. Most of our importers depend on Uzbek cotton because they get good quality yarn from this cotton. Cotton exporters should find other origins that could be used instead of CIS cotton, but the price and quality must be comparative.
Deepok Baral
Chairman and Managing Director, DSM Commodities Ltd.
The percentage of imported cotton from July 2005 – June 2006 was allocated as follows: 57% from CIS countries, 16% from the U.S. and 27% from the rest of the world – Pakistan, India and West Africa. In July 2006 – July 2007, imports from the U.S. drastically came down from 16% to 0.8%. Cotton imports from CIS were at 56%, while the rest of the world was at 43%, led by India. Mainly it is the price driving this, but also the delivery time. Exports from U.S. to Chittagong take 25-45 days, but if shipped from India it can take only 7-14 days.
Every year, we will increase using Indian cotton, and if India improves grades and increases production, then Bangladesh spinners will continue to buy this growth. On the other hand, it is good for the U.S. if the price comes down — if price comes down, Bangladeshi spinners prefer to buy U.S. cotton because it has less contamination and it is better for spinners. So if we cannot use CIS cotton (because major retailers won’t accept it), then that could be very good for the U.S. market share in Bangladesh.
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