Sherpa Hossainy's Blog

Primary textile sector faces tough time

Posted in Bangladesh, Business, Dhaka, Export and Import, RMG and textile by Sherpa Hossainy on August 11, 2011

Published in The Independent on 10 July 2011

Read the article in Independent website

Digital print edition

Dwindling yarn and cotton prices in the international market, incessant power and gas crisis and European Union’s new regulation have put Bangladesh’s primary textile sector (PTS) under grave threat, industry insiders said on Tuesday.

The global cotton prices steadily declined from May this year following an unprecedented rise from October 2010, and hit a momentous high of $2.52 per pound in April; while the prices were $0.95-$1.10 per pound in August-September in 2010.

Currently international cotton prices are hovering around $1-1.3 per pound and international yarn prices also declined from $6.5 per kg in April to $3-3.5 now.

“Now we are incurring around $3 loss per kg of yarn and the spinning mills now have a staggering high-priced yarn stock of 250,000 tonnes worth Tk 9,000 crore ($1.23 billion),” said Jahangir Alamin, president of Bangladesh Textile Mills Association (BTMA) at a press conference in the city.

“Now the ready made garment (RMG) exporters can purchase low-priced woven and knit fabrics from China and India, because those countries have their own cotton production,” he added.

According to the National Board of Revenue (NBR) statistics, the imports of woven and knit fabrics in January-June period went up respectively by 51.18 and 293.06 per cent and yarn imports 18.21 per cent.

The BTMA president said 50 per cent of the total capacity of manufacturing mills is currently unused because of lower export orders and local demands.

He also said the textile mills’ production capacity has decreased by 35-40 per cent for the relentless gas and power crisis.

The BTMA chief said the new GSP criteria might seem to have benefited the ready made garment (RMG) makers, but the long-term growth potential of RMG solely depends on textile sector.

The new rules of origin (RoO), adopted from January 1 by the European Union (EU), fixed single-stage processing instead of two-stage as a condition to enjoy the Generalised System of Preferences (GSP) facility for the least developed countries.

The two-stage processing meant the garment makers had to purchase fabrics from the native country. But under the new rule they can import fabrics from other countries and still attain GSP facility, which gives their products duty-free access in the EU.

“Eighty per cent of all yarns and fabrics produced by this backward linkage industry are exported to the EU countries in the form of RMG. If the textiles sector does not survive, there is no chance of the RMG sector to survive either,” Alamin said.

“Our main competitor China and India are providing strong policy support and cash incentives for their textiles sector, which creates a 15-20 per cent price disadvantage at the onset,” he said.

Moreover, China and India’s market manipulation and anti-dumping policy is also hurting the textiles sector, he added.

Alamin said the government has failed miserably to provide any support and the existing incentives are insufficient to offset the rising price disadvantages.

The BTMA president raised a five-point demand to the government to save the textile sector.

The demands included: increasing the existing cash incentives from 5 percent to 15 per cent and continue it till 2015, taking safeguard measures to discourage imports of raw materials for RMG and encourage use of local fabric and yarn; declaring incurred loss into working capital term loan and put that into a interest-free block account providing two-year moratorium, removing all taxes and duties on polyester and viscous staple fibre to encourage diversification and reduce dependency on cotton and fixing bank interest rate down to a single-digit.

Alamin said in the past three years there had been no new investments in the textiles sector, which boasts existing investments worth over Tk 30,000 crore and where almost 10 million people are involved.

“If these problems persist, let alone new investments the existing ones would be wiped out and creation of new employment would become impossible,” he said.

In the first ten months of the previous fiscal year, the export earnings were $15.07 billion, where primary textile sector’s contribution was $9.06 billion. The contribution of the primary textile sector is more than 80 percent of the total export earnings of the country.

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