Denim, Knitwear Makers Losing Business

The country’s textile and apparel industries are set for a rough ride as they are seeing many of their supply orders being diverted to China, Pakistan, and other countries due to an erosion in their market competitiveness, industry insiders said.

Both the fabric and ready wear manufacturers have been led to this tight corner by the irregular supply and high prices of cotton and yarns in the past several months. The impacts of the Rules of Origin newly relaxed by the European Union have further intensified the problems faced by the fabric manufacturers.

Industry watchers said this time last year all local denim units had been fully booked with orders for the next several months. But now, industry insiders said, many of the denim units here were running below their production capacity or had not received any supply order yet for the coming months.

‘Most of the local denim fabric manufacturers had been witnessing a depression in business in the recent weeks,’ said Chittagong Denim director M Rahamat Ullah.

With 20-plus mills, the denim industry in the past few years has become a strong backward linkage for the Bangladeshi exporters of jeans and other denim wears, who account for more than one-third of the country’s $15 billion plus apparel exports.

Rahamat said the problems being faced by the denim industry were created by the cotton and yarn crisis of the past several months. ‘With the country’s total dependence on imported cotton, denim-makers even braced themselves for more severe impacts of the volatile supplies and record price hike of cotton on the global market,’ he said.

‘Having cheaper and local stocks of cotton, denim-makers of China, Pakistan, and India have been cashing in on the sorry state of their competitors in Bangladesh are in,’ said Rahamat. ‘Since the relaxed EU Rules of Origin came in to effect on January 1, local denim wear manufacturers are procuring more fabrics from abroad and the foreign importers are also insisting that they should do so.’

The relaxed EU Rules of Origin allows made-in-Bangladesh garments, even made with imported fabrics, to enjoy zero-duty entry to EU markets, escaping the previous 12.50 per cent duty.

A top Bangladeshi official at a multinational apparel buying house told New Age that some US and EU importers in recent weeks had cancelled a significant quantity of orders made to Bangladeshi suppliers and diverted those to Pakistan and other sources.

‘As supply of cotton got disrupted in Bangladesh, a huge gap between the yarn prices in Bangladesh and Pakistan has emerged, with which Pakistani suppliers, who had previously been shortage of orders, are now attracting the EU and US importers,’ said the official, whose company’s sourcing in Bangladesh for EU and US retailers amounts to more than $100 million.

The official predicted that, with the impacts of the ongoing problems in the denim and knitwear sectors, Bangladesh would see a significant decline in garment export growth from May onward.

Bangladesh Knitwear Manufacturers’ and Exporters’ Association vice-president Habibur Rahman admitted that they had been informed about the diversion of some orders from Bangladesh to India last month.

‘When major category yarn’s price crossed $7 per kilogram a month back, some importers opted for sourcing from India due to better supply and price of yarns there with shorter lead-time,’ he pointed out.

Bangladesh Garment Manufacturers’ and Exporters’ Association former president Anwar-Ul-Alam Chowdhury Parvez said the problems faced by Bangladeshi denim-makers had intensified as Chinese suppliers were behaving unpredictably in recent weeks, slashing the price of their fabric significantly, that made Bangladeshi fabric further uncompetitive.

He, however, said the trend, like a depression in denim-makers’ business and diversions of some business from local knitwear-makers, was temporary. But he said such an unexpected phenomenon should be tackled prudently by both the government and the industry.

He suggested that the government should arrange for enhanced cash subsidy for the local fabric manufacturers immediately to help them survive this transitional period.

As global cotton price is on the wane, industry watchers, including Parvez and Rahamat, also expressed optimism about the industry making a rebound in the near future.

They foresees that, with the much-hyped increase of yields and arrivals of major cotton crops on global market in August, the cotton prices will fall again and the difference between Bangladesh and its competing counties in procurement cost of cotton will be reduced.

Bangladeshi denim makers and apparel exporters expect the cotton and yarn prices to come down to the level same as in other competing countries within the next six months. They are confident that Bangladeshi suppliers will regain their lead in terms of overall competitiveness.

News Source: The New Age, Sun, 24/04/2011

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Denim makers on a roll as new rules fall into place

Businessmen are putting sizeable investments in the denim sector to cash in on the emerging prospects worldwide, thanks to the relaxation of trade rules and shifting of orders from China.

The industry owners are either expanding their capacity or setting up new plants as demand for denim products went up following a change in the fashion trends.

Previously, the majority of denim apparels were menswear and for winter season, but with the changing scenario, denim items are now made for men, women and children, and for all seasons, they said.

The relaxed rules of origin (RoO) by the European Union (EU) under its Generalised System of Preferences (GSP) opened up new opportunities for the denim sector, manufacturers said.

Under the new GSP rules, effective from January 1, exporters will get zero-duty facility even if the products are made from imported fabrics. Previously, the exporters used to get this benefit if only local fabrics were used.

The demand for local denim will rise due to such flexibility in GSP rules. Till now, the garment makers were importing fabrics from China, India, Pakistan and Indonesia, costing at least 45-day lead-time, experts said.

If the Bangladeshi garment makers get the fabrics from the local market, they will not import at higher costs, lead-time and freight charges, they added.

At present, 21 domestic denim makers supply 40 percent of the demand, while the remaining 60 percent is imported. On an average, every factory has a production capacity of six lakh yards per month.

Managing Director of Partex Denim Showkat Aziz Russell said he is investing another Tk 350 crore to raise the production capacity from 2 million yards per month to 4.5 million yards.

The relaxed RoO have both pros and cons, as the garment manufacturers will get zero-duty facility either way under the new GSP rules. "But, we have the advantage of lead-time now," Russell said.

Syed Mohammad Kamruzzaman, a marketing executive of Ha-Meem Denim, said they will start production in the expanded unit of its Mauna factory, which has doubled its capacity to 1.7 million yards from 8.5 lakh yards per month.

The company invested Tk 100 crore for the expansion, he said. "We are waiting for the government's permission for new gas connection. We hope to start production from June or July," he added.

Obaydul Hoque, an adviser to Silver Denim Composite Ltd, said they are setting up a Tk 300 crore factory to produce eight lakh yards of denim fabrics per month, and will go for production within a year.

"The relaxation of the GSP rules is an added advantage. But we are predicting better future of denim in Bangladesh due to the China factor. Bangladesh will enjoy the advantage of lead-time in the demand driven market," he said.

Hoque said the demand for Bangladeshi textile products is increasing since China, the largest apparel supplier in the world, is shifting its attention to other industries. Bangladesh is a good place for international buyers for its relatively lower production cost, he added.
In September last year, Nitol Group signed an agreement with Arvind, the largest denim company in India, to set up an 80:20 joint venture plant in Bangladesh under Comilla Export Processing Zone.

The investment will be about $69 million over a period of three years. In the first phase, a plant of 10 million-metre capacity will be set up at about $25 million and then it will be scaled up gradually.

Foreign investment is coming in the denim sector because the country has ready consumers and it enjoys the GSP facility to EU. Bangladesh exports products worth over $6 billion a year to EU, of which 90 percent are garment items.

Executive Director of Centre for Policy Dialogue (CPD) Mustafizur Rahman said the peaking demand should depend on competition. "If we can supply denim at a competitive price then the demand will increase obviously," he said.

Although the backward linkage industries will face competition due to the EU move, Bangladesh has the advantage of reduced lead-time and transportation cost, he added.
Zillul Hye Razi, trade adviser to EU trade delegation to Bangladesh, said many more denim factories will come into production in the near future.

"If we can supply quality fabrics at a competitive price, the manufacturers will not go to other countries because Bangladesh will enjoy lead-time facility here," Razi said.
Abdul Hai Sarker, former president of Bangladesh Textile Mills Association, said in the long run there will be a negative impact on local backward linkage industries' growth in the textile sector.

"The backward linkage industries would be at risk because the manufacturers will get zero-tariff benefits if they make garment from the fabrics of other countries," Sarker said.
Jahangir Karim, a teacher of a fashion and design institute, said now denim jeans for both men and women are in the market. "The denim products match almost all designs now and they are made for all seasons," Karim said.

Jalal Ahmed, vice-chairman of Export Promotion Bureau, said in fiscal 2009-10 Bangladesh exported knitwear worth $4.71 billion and woven garment products worth $2.47 billion to EU. During the same period the country exported knitwear worth $891 million and woven garments worth $2.73 billion to the US.

"We are expecting a higher growth of both knitwear and woven garment to EU from now because of the latest EU move on GSP," Ahmed said.

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