Spinners face double trouble
Tuesday, July 12, 2011
Demand for cotton in Bangladesh may decline this year for a reduction of consumption in the local markets. The distressed local spinners are saying there is no demand for the item.
Spinners produced yarn from high-priced, imported cotton, but now the price of cotton is on the decline. Businesspeople said they can hardly adjust the market price of yarn to imported cotton prices.
As a result, local markets are burdened by stockpiles of unsold yarn, they said.
Furthermore, the import of cotton may decline this year although the price of the fibre is declining worldwide because of a reduction in consumption by China, the largest cotton consuming country.
With the recent fall in global cotton prices, demand for the cheaper yarn from China and India has soared in the market, while local spinners have used expensive cotton for their spinning needs.
Local spinners are also unable to take advantage of low cotton prices, as they are yet to dispose of their previous stocks of yarn.
“The import of cotton was meant to be higher, as prices were falling, but for some reasons, it is not happening,†said A Matin Chowdhury, managing director of Malek Spinning Mills Ltd, a major cotton importer.
He said primarily, some new mills were supposed go into operations this year, but for an unavailability of gas connections, they could not. As a result, cotton imports might not increase.
After two years of giving no new gas connections, the government is now planning to resume the connections to the industrial units soon.
Moreover, the current price of local yarn declined to $4.20 a kilogram, dropping from a rate of nearly $7 a kilogram a few months ago. Yarn is being stockpiled as the local spinners cannot sell the item at low prices, he said.
Banks are also losing interest in financing cotton imports, as the financial institutions do not want to take on more risks, he said. “Banks do not want to take risks by financing the import of cotton as the old stocks of yarn are yet to be finished.â€
“Cotton imports were on the rise as the export of readymade garments is increasing. This upward trend of cotton imports might not continue if demand for local yarn does not rise,†he said.
Industry people predict cotton imports to increase to 5.5 million bales in the year that started July 1, when the country usually imports 5 million bales a year. Cotton was selling at $1.17-$1.13 per pound on the New York Futures trade yesterday.
The commodity traded between $1.44 and $1.48 per pound at the New York Futures in mid May. Cotton prices started declining globally on prospects of higher yield next year, and a reduction in consumption by China, the industry people said.
The price of cotton hit historic highs in March this year -- $2.19 per pound on March 7 and $2.04 on March 25.
But the market calmed down by the end of the month with forecasts of better output next year, as cotton producing countries like the US, China, India, Pakistan and the Commonwealth of Independent States increased acreage for cotton cultivation this year.
The initial world cotton projections for 2011-12 show a sharp increase in production to a record 124.7 million bales, with India, China, and Pakistan accounting for 70 percent of the total output, said a report by the United States Department of Agriculture.
World trade is projected at 40 million bales, mainly reflecting higher import demand by China, the report said, adding that world ending stocks are projected to rise to nearly 48 million bales, a 13 percent increase from the beginning level.
Cotton importers and millers are now in a panic as they are unable to sell the yarn, said a senior official of DBL Group, an importer.
The official said many importers have already booked cotton at higher prices with the international cotton dealers, but the price of the fibre is now declining.
They are now in a dilemma as they cannot breach agreements with the dealers and as a result, the spinners have to import high-cost cotton, the official said. Again, the high-cost cotton will be used to spin yarn to sell to customers at lower prices, he said.
“I have already slashed my factory's production volumes as yarn stockpiles are increasing for a low demand,†said Shafiqul Islam Sarker, a director of Purbani Group.
If the normal trend continued, the import of cotton would have increased by 10-15 percent, but it will not happen as demand for yarn is declining in the local market, Sarker said.
“It is my forecast that the import of cotton will decline by 10-15 percent this year,†he said.
Mohammad Ayub, president of Bangladesh Cotton Association (BCA), said Bangladesh needs to increase the stock of cotton as the country is totally dependent on imports.
The country could not take advantage of the price fall because of low demand for the local yarn, he said. Many spinners are running their factories in under-capacity, he said.
The industry people said the total investment of Tk 30,000 crore in the spinning, weaving, dyeing, printing and finishing sub-sectors will be at stake if the government does not take immediate steps to help the sector.
Bangladesh produces eight lakh tonnes of yarn a year from raw cotton imported mainly from the US, India, Uzbekistan, Pakistan and some African countries.
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