As cotton prices keep rising in the global market, production costs for apparel items are also likely to follow suit.
Price of the RMG raw material has been seeing an upward trend in recent months in the international market due to high freight costs, the Russia-Ukraine conflict, and possibilities of a prolonged drought in parts of the central US, industry insiders say.
And prices reached $1.3171 per pound, the highest in more than a decade, on March 22, AFP reported last week.
Meanwhile, indices of Trading Economics and Business Insider showed that cotton was selling for $1.41 per pound on Monday.
The Russian invasion of Ukraine has created a tailspin in the global markets, particularly in the energy sector, adding uncertainty for cotton supplies, according to industry insiders.
Moreover, the depreciation of Taka against the US dollar may have also had an effect on cotton imports.
Importers say that they have to pay more for LCs that were opened a few months ago due to the latest depreciation.
Earlier in January, the central bank officially raised the price of dollars from Tk85.80 to Tk86 but the selling price of USD has risen from Tk86 to Tk90 in the past few days.
Mohammad Ali Khokon, president of the Bangladesh Textiles Mills Association (BTMA), said that the cotton prices are rising in the world market for various reasons.
“The price of cotton has reached its highest since 2011. Today, the price has reached about $1.41, and we have to add another $0.20 for freight charge and other variable costs before the cotton enters the mills,” he added.
He also said that they imported Indian cotton sold for $1.61 per pound on Monday.
“There was no supply as per the demand in the international market, so the cotton crisis has been going on for the last few months due to which the prices are going up,” he added.
Moreover, the freight charges have increased hundreds of times in the international market.
“If we import 25 metric tons of goods in a container, we have to pay more than $13,000-$15,000, so, it will certainly have a negative impact,” he added.
And due to the ongoing Ukraine-Russia crisis, the price of fuel has risen to a record high — $135 per barrel.
“When the price of oil rises, its impact falls first on shipping because there is no way to store the fuel in advance,” Khokon explained.
Regarding the prolonged drought in the US, he said that it is still unknown at this moment what will be the impact as neither the planting season, nor the harvesting season have started yet.
“This situation can be understood after planting in April-May and harvesting in October,” he added.
Meanwhile, rainfall has been exceptionally low since early January in the northwest part of Texas, which produces about 40% of all cotton in the US.
Depending on the region in the US, cotton is planted from March to June, so there is uncertainty in the market about the size of this year’s crop yield, according to John Robinson, a professor at Texas A&M University and a cotton specialist.
Currently, Bangladesh imports 11% — nearly worth $1 billion — of its cotton demand from the US and this is likely to be 14% by this year.
Md Ruhul Amin, managing director of Akand Textile Mills Limited, said that the price of cotton in the world market has been rising for the last few months, which have further accelerated by the rising prices of fuel due to war in Europe.
“If US cotton production is affected by the drought, it will have an impact on the country's yarn by pushing up prices,” he added.
“Now we have to sit with the apparel manufacturers to adjust the prices to suit the situation,” he added.
Shahidullah Azim, vice-president of the Bangladesh Garments Manufacturers and Exporters Association (BGMEA), said textile millers of Bangladesh have to import cotton, so if the prices continue to rise, it will affect both the textile and apparel industries.
He also said that if the price of yarn goes up, the profit margin will go down a lot because production costs will surge significantly.
“Since orders are taken in our factories till the months of June-July, there will be no opportunity for new price adjustment,” he added.
The local spinners used to increase yarn prices by $0.30 to $0.40 on the sales of per kg yarn before August last year, but they increased the price by $0.70-$1 per kg in recent months, he added.
According to the BTMA, Bangladesh needs nearly 9 million bales of cotton every year for its growing apparel industry.
Among them, the local growers can supply less than 2% and Bangladesh has to spend nearly $3 billion for cotton imports.