Stabilizing Prices Offer Hope for Bangladeshi Mills

By Jim.Robinson|February 23, 2012

Bangladesh’s textile industries, the country’s primary sector, faced tremendous economic pressure and struggled mightily in the last year due to the abnormal price hike in raw cotton, the likes of which we haven’t seen in recent memory. As the 2nd-largest raw cotton importer in the world, Bangladeshi spinners suffered badly due to the volatile price of raw cotton and the significant impact it had on the sector.

Mills had to adopt different means of coping with the unbalanced situation between yarn manufacturing cost and yarn selling cost, and as a result, they had to wait to get an acceptable price. Thus, a huge stock of yarn was lying in their warehouses for several months. Spinners had to reduce their production just to stay in business and learned to purchase raw cotton slowly due to the high prices. Then spinners had to sell their overstocked yarn at a considerably lower rate than their cost of manufacturing. This resulted in a very difficult economic condition for a couple of months, and the impacts were reflected on the related knitting and weaving industries to which the spinners sell their yarn.

Now that times have changed again, mills are facing a completely different situation due to sliding raw cotton prices in the international market. The radical price swings created an awkward situation in which the spinners sometimes were forced to default on their contracts with sellers.

In addition, international raw cotton merchants had to refrain from providing timely shipments of cotton against the large number of contracts they had signed with spinners in advance.

As a result, many disputes arose between importers and exporters of raw cotton last year, the majority of which are now being solved either amicably or through the arbitration process.