After order cuts and lower prices from buyers, they have a fresh problem at hand
There seems to be no end to Bangladesh’s apparel exporters’ problems.
After order cuts and lower prices from buyers, they have a fresh problem at hand: the rising process of raw materials.
The development means the road ahead for the country’s apparel exporters would be well bumpy.
On average, the prices of raw materials such as fabrics, yarns, cotton and packaging materials, edged up 5 to 10 per cent in the last couple of months, according to industry people.
The rise in cotton prices, the low productivity caused by the pandemic and a stronger Chinese yuan are largely to blame for the price ticking up.
“Every week, the prices of materials are rising,” SM Khaled, managing director of Snowtex, told Dhaka Tribune.
The buyers' nominated suppliers are asking for higher prices with each new lot and the regular suppliers in China are frequently changing their prices.
Seeing that the demand is comparatively low, one would think that the prices of raw materials would stay low.
“But that is not the case. As a result, the manufacturers are suffering a lot,” he added.
China is the global manufacturing hub for raw materials but the production capacity there is lower than the pre-Covid level.
Besides, the importers are ordering more ahead of the Chinese New Year holidays in February, which is another reason for price rise, Khaled said.
“The prices of apparel raw materials went up at a time when the exporters are facing several challenges such as price cuts by the global buyers, fewer work orders than capacity and work orders cancellations,” said Fazlee Shamim Ehsan, owner of Fatullah Apparels.
Right now, the manufacturers are under pressure from buyers to accept orders at lower prices.
“In this context, the prices of raw materials going up has left us with one too many survival challenges,” he added.
In last three months, the price of cotton went up by 8-10 cent per pound, which impacted the prices of yarn, Monsoor Ahmed, secretary of the Bangladesh Textile Mills Association (BTMA) told Dhaka Tribune.
Yarn accounts for as many as 60 per cent of the production cost for denim fabrics, according to Mobasher Ahmed, assistant general manager of marketing at Square Denim.
For fresh orders, Square will be charging 5-10 cent more per yard as the production costs have gone up, he told Dhaka Tribune yesterday.
All international benchmark prices of cotton have increased over the past month with the largest increase in prices in China.
Bangladesh exports mainly five items: T-shirts, sweaters, trousers, jackets and shirts, which together constitute more than 70 per cent of the orders, according to Mostafiz Uddin, managing director of Denim Expert.
“The basic raw materials of these 5 items are cotton and Bangladesh does not produce any cotton that could be used in apparel manufacturing.”
So, an increase in the cotton price will indeed contribute to the rise in the production cost.
“Unfortunately, we have seen in the past years that though the production costs have increased manifold for different reasons, many buyers did not increase the prices. So, ultimately the manufacturers have to bear the brunt, which should not be the case,” he added.
The accessory suppliers of the apparel industry, who form its backward linkage, have also been sucked into this predicament: the apparel manufacturers are offering lower prices for their product in the face of price squeeze from Western retailers.
“The buyers have cut the prices of clothing products, so they have passed that on to us,” said Md Abdul Kader Khan, managing director of Khan Accessories and Packaging Company.
On the other hand, the raw material prices increased, which left manufacturers in severe trouble and they are incurring huge losses, said Kader, also the president of the Bangladesh Garments Accessories and Packaging Manufacturers and Exporters Association (BGAPMEA).
The price of raw materials increased 10 to 20 per cent in the last few months, according to BGAPMEA’s estimates.
“In this context, global buyers and local manufacturers should adjust the prices for the sake of sustainability. If the local suppliers and buyers do not help us, the accessories sector will fall into a debt trap,” Khan added.