Spinners had the worst year in a decade in 2023 as yarn became cheaper in the global market, dragging most companies in the red.
Of the companies, Metro Spinning Mills experienced a loss of Tk 192.40 million in FY23, whereas it had profits in the previous five fiscal years.
Similarly, Safko Spinnings Mills incurred a loss of Tk 165 million in FY23 after gaining profits in the previous two fiscal years. The company also reported a steep year-on-year loss for the July-September quarter of FY24.
Apart from the international price decline in finished goods, yarn producers said, gas price hikes and the depreciation of the local currency against the dollar squeezed the businesses' opportunity further to earn money.
"We had not had such a bad year like 2023 in more than a decade. The cotton industry worth Tk 600 billion is yet to overcome the impacts of macroeconomic worries amid limited policy support," said Mohammad Jewel Rana, company secretary of Metro Spinning Mills.
Spinners said they earlier could easily avail of loans at a nominal interest rate of 2-3 per cent from the Export Development Fund (EDF) of the Bangladesh Bank.
The central bank has made it difficult to get such loans amid the pressure on the foreign exchange reserves.
Now, the yarn makers are required to pay back loans within 90-120 days. However, it takes around 45 days just to receive imported raw cotton, pushing back time beyond 120 days for the companies to get export proceeds.
High import dependence
Spinners have to import almost 100 per cent raw cotton as the locally-produced cotton falls short to meet the local demand, let alone supply to the export-oriented industry.
The lion's share of the agricultural land in Bangladesh is being used to produce food grains.
Industry insiders say the country produces less than 0.2 million cotton bales per year while the annual demand is 8.5 million bales. Hence, more than 98 per cent of the country's cotton consumption is dependent on imports.
Moreover, local cotton is not of the quality required for exportable yarn. This cotton is mostly used in manufacturing fabrics that are consumed locally.
While companies paid more to import cotton because of the currency devaluation, they had to sell finished goods at the international markets at a lower price.
The price of yarn fell from $5 per kg to $2.9 per kg year-on-year in 2023.
Around the same time, the gas price jumped almost 100 per cent during the outgoing calendar year. Along with gas, higher cost of other utilities played a big role in shrinking the bottom lines of the balance sheets of the listed spinners.
On the other hand, textile makers witnessed a profit growth in 2023, riding on a rise in exports.
Exports of readymade garments reached $47.39 billion in 2023, increased by 2 per cent from 2022, according to the year-end export data published by the Export Promotion Bureau (EPB).
That is why textile makers, such as Envoy Textile, Esquire Knit Composite, and Generation Next Fashions experienced a profit growth in FY23.
Stock performance
The poor business in yarn exports reflected in the stock performance of listed spinners.
Of the top 20 losers on the Dhaka Stock Exchange in 2023, nine were from the textile sector but they are all yarn makers. Their market prices plunged by 20 per cent-42.2 per cent on the Dhaka bourse.
Of the spinners, Metro Spinning Mills saw the highest correction of 42.2 per cent, followed by Safko Spinnings Mills, Prime Textile Spinning Mills, and Zahin Spinning.
Maksons Spinning Mills reported a profit of Tk 494 million and Tk 505 million for FY21 and FY22 respectively, but suffered a loss of Tk 936 million in FY23. It continued to endure a loss in the July-September quarter, FY24.
The company secretary of Maksons Spinning, Mills Noor Mohammad said the gross income of some spinning mills had turned negative due to various factors, including delayed letters of credit and a rise in the costs of goods sold.
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