LC cancellation by importers of essentials, scrap vessels up

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Siddique Islam
The rate of cancellation of letters of credit (LCs) for import of essential items has significantly increased because of substantial erosion in prices of the commodities in the global market.
The rate of cancellation of LCs against import of essential items, particularly those of rice, wheat and edible oils, has been relatively higher in recent weeks. A number of LCs for scrap vessels have also been cancelled because of drastic fall in the price of the same in the international market, officials said.
"The cancellation of LCs has increased due mainly to declining trend in the prices of commodities in the international market," a senior official of the Bangladesh Bank (BB) told the FE.
The LCs for edible oil worth US$26.21 million were cancelled during the first quarter of the current fiscal. Such cancellation was worth only $2.42 million during the corresponding period of the previous fiscal, according to the central bank statistics.
The edible oil is now being traded at around $600 per tonne in the international market. The price of the item reached a record high of $1280 per tonne three months back, market operators said.
The BB officials, however, expressed concern over rising trend in the cancellation of LCs of essential items saying that the rate of cancellation may go up further in the near future if the prices of such items maintained the downtrend.
"The government may have cancelled LCs for wheat," another BB senior official told the FE, adding that at least 0.10 million tonnes wheat, which were scheduled to reach the country, are yet to reach.
Currently, wheat is traded at $180 per tonne in the global market as against $455 per tonne in the month of July last.
Most of the LCs are now being opened to import wheat from Nepal, the BB official said.
The LCs for rice worth US$39.63 million were cancelled during July-September period of the fiscal 2008-09 as against the same worth $22.44 million during the same period of the previous fiscal, the BB data showed.
"Not a single LC was opened to import rice during the first 23 days of this month due to seasonal impact as well as falling trend in prices of cereals in the global market," the official added.
Rice was traded between $500 and $510 per tonne in January last. The price came down to $310 per tonne in July this year, he said.
On the other hand, the LCs for scrap vessels worth $3.06 million were cancelled during the period under review. The cancellation of LCs for scrap vessels was worth $0.09 million during the corresponding period of the pervious fiscal.
"The rate of cancellation of LCs for scrap vessels has gradually increased because of falling prices of the item in the international market," a senior official of a private commercial bank (PCB) told the FE Saturday.
Currently, the scrap vessels are traded at $350 per tonne in the global market. The price was $750 per tonne just one month back.
He also said increased cancellation of LCs done on the basis of agreement between importers and exporters might create pressure on the supply situation of commodities in the local market.
"The consumers are not getting any benefit from the declining trend in prices of commodities in the global market due mainly to the lack of proper monitoring by the government," the PCB official added.