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The droughts in China, Europe, North America, Brazil and Africa – countries that produce cotton that the RMG industry in Bangladesh imports from is now affecting RMG production here.
Extreme weather is wreaking havoc on almost all of the world’s largest cotton suppliers like the US, Brazil, Canada, and Africa.
According to Bloomberg, the cotton production in the US is set to plunge by 28% while by 27% for Brazil, along with a significant decline in production in India.
The drought in China, has the mighty Yangtze drying up to dangerous levels, affecting hydropower generation and near halting shipping.
Monsoor Ahmed, additional director and CEO (In-Charge) of the Bangladesh Textile Mills Association (BTMA), told Dhaka Tribune that if cotton production is reduced due to drought in the US and Brazil, it will have a severe impact on Bangladesh.
“We import 10%-11% cotton from the US and 4%-5% from Brazil. China imports more cotton from the US, but we import yarn and fabrics from China. So, there is no relief from the negative impact,” he added.
Talking to Dhaka Tribune, Himel Khan, director of Mithela Textile Ltd said that the declining cotton production in the US, Brazil and other countries will hit the textile sector in Bangladesh.
“The cotton prices exceed past records and it will further increase our production cost. But the buyers are still reluctant to give fair prices to the apparel manufacturers, which will negatively impact the textile and apparel sector,” he added.
With a 33% share, the US is the largest exporter of cotton followed by Brazil with 17%, and India with 9%.
Walmart cancels orders globally
The apparel manufacturers of the country fear losses as Walmart, the fourth largest importer of the country’s apparel items, started cancelling orders globally as part of a continued effort to align inventory levels and pursue the demands of budget-conscious consumers.
Shahidullah Azim, acting president of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), said that Walmart has cancelled their purchase orders by 30%.
“They are also deferring the shipment time of some orders,” he added.
BGMEA Director Mohiuddin Rubel told Dhaka Tribune that the global economic crises have affected many countries in the Euro-America region.
“We were already worried that garment exports may be hit again and that fear is real now through the announcement of one of the world’s top chain shops, Walmart,” he added.
It is a big blow for the industry as the production cost has already increased due to various reasons.
“Walmart is our big customer, and having them cancel orders means billions of dollars worth of orders and it will be hard for the manufacturers to handle as the factories that work for Walmart make clothes only for Walmart,” he added.
The situation is getting worse and they have nothing to do other than keep a keen eye on developments, he added.
Global Inflation
According to Eurostat, the statistical office of the European Union, the rate of inflation in the Eurozone was 8.9% in July 2022, while 9.8% in the EU countries, and 10.1% in the UK, hitting a new high as growth slows amid the Ukraine war.
The EU and the UK is the prime destination of the apparel exports from Bangladesh at more than 60% in the last fiscal year.
The inflation in the US also keeps surging, 8.5% in July 2022, according to Statista data.
Due to the inflation, the purchase orders from these destinations reduced by 30%-35% as the buyers are moving forward cautiously in placing orders due to the war which is taking a toll on the entire European continent’s economy.
Shahidullah Azim said that the purchase order is decreasing and there are many big factories that close their operation after launch every day.
The BGMEA officials also said that the country’s export earnings in August is likely to decline by around $500 million due to fewer orders, delay in delivery and forced discounts.
Mohiuddin Rubel said that they were already aware that bad times may come.
Fuel price hike
The hike in fuel price led to a steep jump in production cost by 12%-15% and also a sharp hike in logistics costs for the manufacturing sector by 20%-40%, said Shovon Islam, managing director of Sparrow Group.
Moreover, a hike of 62% in yarn price, 500% in freight cost, and 60% in chemical cost also impacted the sector, said Mohiuddin Rubel.
According to industry insiders, the drought in cotton-producing countries, cancellation of orders by buyers, and global inflation are some of the factors also affecting the industry now.
They have also been affected by crises like the Russia-Ukraine war, swelling production and transportation costs due to fuel price hikes, load shedding and gas shortage for the past few months, they added.
(DT)
