Erosion in their market competitiveness blamed
The country’s textile and apparel industries are set for a rough ride as they are seeing many of their supply orders being diverted to China, Pakistan, and other countries due to an erosion in their market competitiveness, industry insiders said.
Both the fabric and ready wear manufacturers have been led to this tight corner by the irregular supply and high prices of cotton and yarns in the past several months. The impacts of the Rules of Origin newly relaxed by the European Union have further intensified the problems faced by the fabric manufacturers.
Industry watchers said this time last year all local denim units had been fully booked with orders for the next several months. But now, industry insiders said, many of the denim units here were running below their production capacity or had not received any supply order yet for the coming months.
‘Most of the local denim fabric manufacturers had been witnessing a depression in business in the recent weeks,’ said Chittagong Denim director M Rahamat Ullah.
With 20-plus mills, the denim industry in the past few years has become a strong backward linkage for the Bangladeshi exporters of jeans and other denim wears, who account for more than one-third of the country’s $15 billion plus apparel exports.
Rahamat said the problems being faced by the denim industry were created by the cotton and yarn crisis of the past several months. ‘With the country’s total dependence on imported cotton, denim-makers even braced themselves for more severe impacts of the volatile supplies and record price hike of cotton on the global market,’ he said.
‘Having cheaper and local stocks of cotton, denim-makers of China, Pakistan, and India have been cashing in on the sorry state of their competitors in Bangladesh are in,’ said Rahamat. ‘Since the relaxed EU Rules of Origin came in to effect on January 1, local denim wear manufacturers are procuring more fabrics from abroad and the foreign importers are also insisting that they should do so.’
The relaxed EU Rules of Origin allows made-in-Bangladesh garments, even made with imported fabrics, to enjoy zero-duty entry to EU markets, escaping the previous 12.50 per cent duty.
A top Bangladeshi official at a multinational apparel buying house told New Age that some US and EU importers in recent weeks had cancelled a significant quantity of orders made to Bangladeshi suppliers and diverted those to Pakistan and other sources.
‘As supply of cotton got disrupted in Bangladesh, a huge gap between the yarn prices in Bangladesh and Pakistan has emerged, with which Pakistani suppliers, who had previously been shortage of orders, are now attracting the EU and US importers,’ said the official, whose company’s sourcing in Bangladesh for EU and US retailers amounts to more than $100 million.
The official predicted that, with the impacts of the ongoing problems in the denim and knitwear sectors, Bangladesh would see a significant decline in garment export growth from May onward.
Bangladesh Knitwear Manufacturers’ and Exporters’ Association vice-president Habibur Rahman admitted that they had been informed about the diversion of some orders from Bangladesh to India last month.
‘When major category yarn’s price crossed $7 per kilogram a month back, some importers opted for sourcing from India due to better supply and price of yarns there with shorter lead-time,’ he pointed out.
Bangladesh Garment Manufacturers’ and Exporters’ Association former president Anwar-Ul-Alam Chowdhury Parvez said the problems faced by Bangladeshi denim-makers had intensified as Chinese suppliers were behaving unpredictably in recent weeks, slashing the price of their fabric significantly, that made Bangladeshi fabric further uncompetitive.
He, however, said the trend, like a depression in denim-makers’ business and diversions of some business from local knitwear-makers, was temporary. But he said such an unexpected phenomenon should be tackled prudently by both the government and the industry.
He suggested that the government should arrange for enhanced cash subsidy for the local fabric manufacturers immediately to help them survive this transitional period.
As global cotton price is on the wane, industry watchers, including Parvez and Rahamat, also expressed optimism about the industry making a rebound in the near future.
They foresees that, with the much-hyped increase of yields and arrivals of major cotton crops on global market in August, the cotton prices will fall again and the difference between Bangladesh and its competing counties in procurement cost of cotton will be reduced.
Bangladeshi denim makers and apparel exporters expect the cotton and yarn prices to come down to the level same as in other competing countries within the next six months. They are confident that Bangladeshi suppliers will regain their lead in terms of overall competitiveness.
Courtesy of New Age
