From med to mild steel, dollar jump fuels a manufacturing nightmare

A confluence of factors -- dragging on inflation, a dollar shortage and rising utility prices -- had already punctured the country's manufacturing spirit. The recent record surge in the dollar, jumping Tk 7 in a single day, has only compounded these difficulties for manufacturers who rely heavily on imported raw materials.
Faced with rising production costs, manufacturers across various industries -- from steel and cement to ceramics and pharmaceuticals -- are struggling to maintain sales and remain competitive.
With sluggish sales for the past two years due to inflation, they are now hesitant to further burden consumers by raising prices. Besides, uncertainty about future business prospects and a deepening dollar crisis fuel their anxieties.
Industry insiders said although the dollar crisis has plagued them for a couple of years, the situation has become increasingly dire recently.

On May 8, the Bangladesh Bank introduced a crawling peg exchange rate system, allowing banks to buy and sell US dollars at around Tk 117, up from the previous rate of Tk 110.
A top official from a steel manufacturing company said the sector depends on imported raw materials, with nearly 90 per cent of materials like scrap metal and allied products coming from overseas.
"As soon as news of the taka devaluation broke, a company raised the price of silicon manganese [used in steel production] by Tk 30,000 per tonne," said Masadul Alam Masud, managing director of Shahariar Steel Mills.
He said this will soon translate to higher prices for steel products in the local market, as manufacturers utilise these high-cost raw materials.
Consequently, he feared an increase of Tk 5,000 per tonne for mild steel rods, which could negatively impact the already limping construction sector.
"We, the millers, are now helpless due to the dollar crisis along with other production problems," said Mr Masud,
who is also the former chairman of the Bangladesh Steel Manufacturers Association (BSMA).
Despite the global price of scrap metal -- the main key steelmaking ingredient -- remaining stable at around $400-$450 per tonne, local manufacturers cannot benefit due to the dollar crisis, he said.
"The limit for LCs (letters of credit) has not changed, but the value of the taka against the dollar has fallen dramatically in recent years," he said.
Bangladesh Bank (BB) data shows a significant decline in capital machinery imports during the July-February period of the current fiscal year. Compared to the corresponding period last year, imports fell by almost 22 per cent to $2,621 million.
Imports of other capital goods also dropped by 21 per cent, from $5,942 million to $4,674 million.
An executive of a cement manufacturing company told The Financial Express that they plan to raise the price by Tk 10-20 per bag soon due to increased operational costs.
"We face a difficult decision," he said. "The market remains sluggish, while we also need to stay competitive. As a result, the management has decided to reduce our profit margin to ensure survival."
"Fluctuations in foreign currencies like the dollar and fuel prices inevitably affect almost every sector," said KSM Mustafizur Rahman, managing director of One Pharma Ltd. "Import-reliant sectors, however, bear the brunt of the impact."
"The pharmaceutical sector relies almost entirely on imported raw materials and machinery, indicating an unfavourable course ahead," he said.
While Bangladesh is now nearly self-sufficient in medicine production, the sector remains heavily dependent on other countries for machinery imports and active pharmaceutical ingredients (APIs).
Mr Rahman suggested measures to enhance the country's export competitiveness, including fully operationalising the API park in Munshiganj, ensuring a stable supply of utilities and establishing an effluent treatment plant (ETP).
Regarding the taka-dollar issue, he called for reduced dependence on a single currency. "There are some initiatives underway in this regard, but they need to be expedited," he added.
Bangladesh Paint Manufacturers' Association General Secretary Arun Mitra said several factors, including the rising cost of doing business, have forced a number of local paint manufacturers to either scale back operations or exit the market entirely.
"Demand for this essential building material has declined significantly in recent times, reflecting inflationary pressures on consumers," he said.
Contacted, Dr Zahid Hussain, a former lead economist at the World Bank's Dhaka office, said the introduction of the crawling peg exchange rate system might create uncertainty among importers, but it does not justify raising import costs.
He said while the official dollar price is capped at around Tk 117, it previously traded above Tk 118 in reality. "Importers might be concerned about getting adequate dollars to open LCs due to increased caution among dollar sellers."
"Any attempt to exploit the situation could negatively impact the market," the economist warned.
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