Soaring yarn prices endanger recovery of knitwear export

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Sonia H Moni
Yarn prices have shot up 20-30 percent in local market in the last one month in a fresh setback for the country's largest exporting sector, knitwear, head of BKMEA said Friday.
Fazlul Hoque, president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), told the FE that price of cotton traded at US$3.05-$3.15 a kilogram on Thursday, up from $2.30-$2.40 a month back.
"It's a big blow for the country's knitwear sector. Yarn prices are rising at an alarming rate and at a time when we are trying to bounce back after months of negative growth," Hoque said.
Hoque said increased yarn prices would hit profit margins of knitwear manufacturers, particularly the signs look ominous for small factories, which will be severely pummelled by soaring rates.
"Some 150-200 factories will be the hardest hit. Many companies will lose a big chunk of their orders as they cannot compete in prices demanded by western buyers," he said.
Knitwear is the country's largest exporting sector, with T-shirts alone accounting for more than 20 per cent of Bangladesh's $12.3 billion garment shipment in the 2008-9 fiscal year.
Some 2000 knitwear factories produce items such as T-shirts, polo shirts and sweaters. They procure 80 per cent of their cotton yarn from local spinning mills and import the rest from abroad.
The sector was battered by the ongoing global economic recession. In the first four months to October, knitwear export was down by 4.28 per cent, owing largely to a fall in demand in Europe and North America.
Hoque blamed local spinners for the price hike, alleging that the country's 300 plus spinning mills have hiked rates more than the international level.
"It's unfortunate that the millers are cashing in on a volatile situation. Most of them have imported cotton months back. But they are charging at today's international prices," he said.
He sought the government's intervention to curb price hike and demanded daily monitoring of local and international yarn rates in an effort to protect the exporters from rogue millers.
Abdul Hai Sarker, chairman of Bangladesh Textile Mills Association, which represents the spinning companies, has admitted that prices of yarns have risen gradually in recent weeks.
But he put the blame squarely on the soaring prices of raw cotton --- primary material for yarn --- in international market.
"The price of cotton has jumped by 40 per cent and price of yarn increased 12-15 per cent in the international market in the last few weeks," he said, justifying the reason for domestic rate hike.
Mr. Sarker said "Now cotton is selling at 84 cent per pound in international market. It has not happened all of a sudden; rather the prices have been rising gradually. In the last four-five months, cotton never traded below 70 cent per pound," he said.
He denied that yarn was selling above $3.05 cent per kg in local market. The millers sold yarn at $2.85-$2.90 last week, which was $2.65-$2.70 two to three months back, he said.
The country has some 360 spinning mills, which produce 1.0 billion kg yarn per year. But due to power and gas shortage, some companies are utilising 60-70 per cent of their capacity.
"We can produce 1.6 billion kg yarn per year if we operate at full capacity," he said.