Yarn import jumps 13% as local production chokes amid gas crisis

Bangladesh's textile and spinning mills are struggling to produce yarn due to a lingering gas crisis which has led to a jump in yarn imports of about 13% as fabric and apparel makers look elsewhere to meet the demand.

According to data from the Bangladesh Bank, the apparel industry imported yarn worth $2.64 billion in the July-April period of the just-concluded fiscal year, compared to products worth $2.34 billion during the same period in FY23.

Apparel exporters said the garment industry is facing a double whammy. Local textile mills and garment makers have been forced to increase imports despite the prevailing dollar crisis. Recent cuts to government incentives may further encourage imports. This reliance on foreign yarn could hurt the value addition of the RMG sector.

Gas supply crisis has also become a critical component in this situation. Typically, garments and textile mills require around 8-10 pounds per square inch (PSI) of gas pressure to run at full capacity.

However, gas pressure drops to 1-2 PSI during the daytime, significantly impacting production which continues even into the night in the major industrial zones, according to the Bangladesh Textile Mills Association (BTMA).

Low gas pressure has crippled production forcing 70-80% of mills to operate at around 40% of their capacity, industry owners say.

"We have been grappling with gas shortages over the past year, and our production has gradually declined. However, production has now plummeted below 40% of our capacity as the crisis intensified over the last month," said Rajib Haider, managing director of Outpace Spinning Mills Ltd, located in Mawna, Sreepur, while speaking to TBS.

The gas crisis is especially severe in areas such as Tongi, Joydebpur, Sreepur, Bhaluka, Araihazar in Narayanganj, Palash, Madhabdi, Madanpur, Savar, and Ashulia

Mohammad Ali Khokon, president of BTMA

"Despite having orders, spinning mill owners are concerned about meeting supply deadlines," If spinners fail to supply yarn on time, garment owners may be forced to import yarns, he added.

The entrepreneur also noted that reduced production has raised costs and reduced cash flow, making it challenging to pay workers' salaries and allowances on time.

Mohammad Ali Khokon, president of BTMA, told TBS that the gas crisis is especially severe in areas such as Tongi, Joydebpur, Sreepur, Bhaluka, Araihazar in Narayanganj, Palash, Madhabdi, Madanpur, Savar, and Ashulia.

Apparel exporters have also recognised the challenges faced by textile and spinning mills. They noted that disruptions in gas and electricity supply have significantly impacted operations at RMG factories as well.

Mohammad Hatem, executive president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), "In the Narayanganj area, gas pressure was at zero before Eid-ul-Adha, but it has now increased to 3-4 PSI. Nevertheless, this pressure is insufficient to operate all machines, which affects their lead times. As a result, most dyeing factories are operating at 50% of their capacity."

Cash incentive cuts fuel yarn import 

According to a central bank circular issued on 30 June, the cash incentive for local export-oriented textile mills has been reduced from 3% to 1.5%. Approximately six months ago, the incentive rate was 4%.

Mohammad Hatem said the effective rate of this cash incentive would be 1.2%, as it is calculated at 80% of the FoB (Free on Board) price.

He explained, "Spinners receive the incentives through garment exporters. When we (garment manufacturers) purchase local yarn, spinners account for the cash incentives during payment, but apparel exporters only receive their incentives a year to a year and a half later."

Additionally, getting these incentives involves various hurdles, meaning garment exporters will now likely opt for imported yarn over the less-incentivised local yarn, he said.

Hatem added that the RMG industry may become an "import-dependent export industry" if government policies are not revised to enhance the competitiveness of local industries.

Speaking with TBS, Giant Group Director SM Majedur Rahim stated, "We typically import the finest yarn, which costs 40-42 cents less per kilogram than local yarn. However, moving forward, we will import yarn even if the cost difference with local yarn narrows to 20-25 cents."

"The price of a 30/1 count yarn, commonly used for making knitwear, was $3.70 per kg a month ago, but it has now dropped to $3.20 to $3.25. Meanwhile, Indian spinners are offering the same yarn even cheaper at $2.90 to $2.95," he said, adding that apparel exporters will definitely go for yarn imports considering the cost benefits.   

However, BTMA officials said the prices of locally-made yarn are lower when considering the production costs and cotton import costs.

BTMA for old gas prices as supply issues continue

Last month, the BTMA sent a letter to Petrobangla Chairman Zanendra Nath Sarker, highlighting that the gas crisis has severely impacted factory production with supply line pressure in some member mills dropping to near zero. This has caused significant machinery damage and halted operations.

The letter also noted that the price of gas per cubic metre had increased from Tk16 to Tk31.5 in January 2023. Despite this price hike and government assurances of an uninterrupted gas supply, the expected gas supply never materialised.

At a press conference in January this year, the BTMA also called for a return to the previous gas price for textile industries until the ongoing crisis is resolved.