Yarn imports rise sharply as prices soar in local market

MB Knit Fashion Limited, a knitwear manufacturer and exporter based in Narayanganj, used to meet almost its entire demand for yarn collected from local spinning mill owners. However, the company procured 30% of the item from abroad last year.

Exorbitant prices of the important raw material for readymade garments in the domestic market forced it to opt for heavy imports from cheaper global sources, said the company.

In August-September last year, when one kilogram of 30 count yarn – commonly used for making knitwear – was selling at $4.30 in Bangladesh, the company imported it from India at $3.60.

Like MB Knit Fashion, most of the medium- and large-scale apparel exporters have increased yarn imports in recent times.

According to sources at the Bangladesh Textile Mills Association (BTMA), Bangladesh imported around 1.07 million tonnes of yarn in 2021, which is 65% higher when compared with the previous year. During the same period, imports of fabrics increased by 41% and cotton by 27%.

On the other hand, garment exports rose by about 30% year-on-year in 2021, according to data provided by the Export Promotion Bureau (EPB). The growth was a negative 17% in the previous year amid the pandemic.

Demand for readymade garments rose sharply last year as retail stores reopened, with demand picking up at Bangladesh's major export destinations, Europe and America, following an improvement in the Covid-19 situation.

As export orders for clothes increased, prices of their main raw material, yarn, began to rise sharply in the middle of last year.

Mohammad Hatem, managing director of MB Knit Fashion, told The Business Standard that local spinning mills suddenly started hiking the price of yarn at a time when the demand of the firm for the raw material was on the rise in the wake of a continuous increase in export orders for readymade garments.

"We observed that the price difference between locally produced and imported yarn was $.6 cents to $1, or even more in some cases. Imports have increased due to their (spinning millers) unethical business policy."

Explaining the reason for RMG manufacturers' inclination towards imports, he said, "Those who import 1,000 tonnes of yarn a year can save $5 lakh, if they can save 50 cents per kg. Then why will they not go for import?"

Nonetheless, exporters do not get the cash incentives provided by the government if they make clothes by using imported yarn. Moreover, importing raw materials is risky when the lead time is short.

It is possible to purchase yarn from local spinners within a day of opening an LC, while it takes 2-8 weeks to import the product from the international market.

Besides, if a garment exporter purchases yarn from local spinning mills, he gets an opportunity to offer acceptance at a later time and pay the price after four months, which is not the case with imports. This also has financial value.

Garment exporters, however, are of the opinion that despite these costs, importing has been more profitable for them than procuring from local spinning mills.

But spinning mill owners have come up with a different explanation about the rise in imports of yarn.

According to them, local spinning mills did not have the capacity to meet the increasing demand for yarn in the local market as export orders of readymade garments increased sharply and that was the main reason for the increase in imports.

Khorshed Alam, chairman of Little Star Spinning Mills Limited and former director of the BTMA, told TBS that the huge demand for readymade garments and home textiles last year boosted demand for yarn. But the spinning mills did not have the capacity to supply so much yarn. "In that context, there was no alternative but to increase imports."

Responding to the RMG manufacturers' allegations of excessive price hike, he said the price of yarn has gone up due to increases in the price of cotton – the main raw material for yarn, freight charge, and production cost locally.

Most of the yarn imported into Bangladesh comes from India.

Khorshed Alam said, "India had huge stocks of cotton at that time, which enabled them to sell yarn at a relatively low price. But after the stocks ran out, the price of yarn rose sharply in India as well. As a result, the difference in per kilogram 30 count yarn prices in India and Bangladesh has come down to 30-40 cents.

Mohammad Ali Khokon, president of the BTMA, told TBS that the extent of yarn price hike in the local market was still lower compared to the surge in cotton price and production cost taken into account.

Textile millers, however, have claimed that the price gap between Indian and locally produced yarn – which narrowed to some extent recently following a sharp rise of the product in India – has widened again.

On Tuesday night, Mohammad Hatem connected this correspondent to a discussion with a trader based in Kolkata. At the discussion, they informed TBS that one kilogram of yarn can now be bought from India for $4.30, which is $5.25 in Bangladesh.

Textile mill owners and garment manufacturers do not see signs of a drop in yarn prices anytime soon as textile mill owners say they too are not able to supply cotton as per demand. As a result, the pace of imports is unlikely to slow down.