FW
With domestic cotton prices exceeding international cotton prices, the profitability of spinning companies in the second quarter of 2016-17 likely to get hit. This would adversely impact the yarn demand and export prospects of the spinning industry, a report of ratings agency, Investment Information and Credit Rating Agency of India (ICRA) said.
Domestic prices of ginned cotton have increased significantly from about Rs 90-92 per kg in April to around Rs 122 per kg now. Slow growth in domestic consumption and stagnation in exports are likely to negatively impact demand and export competitiveness of the Indian yarn, the agency added.
According to Anil Gupta, VP, corporate sector ratings, ICRA, slower cotton sowing and decline in cotton sown area apart from cotton stocking by intermediaries could be the reason that has led to this sharp rise in prices.
As per ICRA estimates, the profitability of spinning industry will be adversely affected because of the price rise as it faces challenges of slow growth in domestic consumption and high reliance on exports. ICRA points out, the stability in cotton prices is most critical for a profitable textile industry as it minimizes the risks of inventory losses and the need for a price hike for the existing and future orders. Gupta further said that both the factors are a challenge for the mills to sell their production. One can also see a decline in capacity utilization and also contribution margins to prevent inventory build-up.
The spinning players, who may have stocked inventories for four to five months from March this year, may witness improved profitability as they are likely to gain from higher yarn prices.
A giant industrial park mainly designed for textile manufacture, garment products and agro industry has come up in Ethiopia. This would help boost the country’s exports, it is said. Built on an area of 1.3 million square meters, it involved a cost of $250 million in completing. The mega project, built by a Chinese company, was completed in only 9 months time.
The new park has been built as part of the government’s plans to expand the industry development which plays a crucial role in realising the country’s dream to be Africa’s leading manufacturing powerhouse.
Speaking at the inaugural ceremony, Ethiopian Prime Minister Hailemariam Desalegn said that the giant park will have significant input in transforming the country’s economy. It will attract foreign direct investments and will play a pivotal role in transforming small-scale manufactures into a larger scale. The mega project named Hawassa Industrial Park is located in Hawassa town located some 275 km south of the capital, Addis Ababa.
The Hawassa eco-industrial park has 35 factories equipped with 1 stop service center and has its own renewable electricity sources to avoid power supply problems. Nearly 15 foreign companies from America, China, India and Sri Lanka as well as six local companies have finalized preparations to start operation at the Industrial Park.
Riding on the apparel sector that accounts for the biggest revenue source, the Bangladesh government has set an export target of $37 billion for fiscal year 2016-17. The set target is aimed at 8 per cent increase from the export achievement made last fiscal.
Bulk of the target is set for the readymade garment sector. The export target set for Bangladesh’s biggest export sector has been set at $30.3 billion, 8 per cent more than it was last year.
Apparel owners are optimistic of the industry’s future in Bangladesh and aims to gain $50 billion in garment exports by the end of 2021.
An official report on Bangladesh's ready-made garment industry shows poor compliance with regard to issuance of appointment letters and identity cards to the workers, preserving their service records and granting maternity leave and other lawful benefits to them. In the absence of appointment letters, service books and ID cards, the workers are deprived of their lawful rights and benefits. Such deprivation took place in the cases of Tazreen Fashion and Rana Plaza workers, labour leaders alleged.
The Department of Inspection for Factories and Establishment (DIFE) under the ministry of labour and employment has come up with the findings after it carried out monthly inspection in some 212 ready-made garment factories in May 2016. The report says, about 63 per cent of the apparel factories were found engaging their workers in extra hours of work without taking prior permission from the authorities concerned. Only 11 per cent of the factories not affiliated with BGMEA and the BKMEA met the requirements.
Out of the surveyed units, 145 were the members of Bangladesh Garment Manufacturers and Exporters Association (BGMEA) and 32 of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA). Others are not allowed to join any trade unions because of this. Irregularities are more in apparel factories that are not the members of any of the two trade bodies, according to the report.
Across the world, cotton markets have soared reflecting a burst of speculative buying sparked by concerns about smaller stockpiles. ICE October cotton leapt as much as 5.6 per cent to 75.14 cents a pound on Wednesday, the highest price in two years. Open interest, or the number of contracts outstanding, in the US cotton futures market has grown by 11.5 per cent this week, reflecting an influx of new buyers.
Cotton had been one of the slowest commodity markets in recent years, with prices hovering in a narrow range. That abruptly changed this week, with ICE futures locking at price fluctuation limits on Tuesday and Wednesday.
Meanwhile, one trigger was the release of supply estimates by the US Department of Agriculture. The agency estimated global stockpiles would drop 9m bales on year to 91.29m bales by July 2017, 3.4m lower than its previous estimate on increasing Chinese demand. A cotton bale weighs about 500lb.
China’s textile mills sector makes the country the world’s largest cotton consumer. The cotton market has for years been capped by uncertainty over a bloated Chinese state reserve built up under a price support programme for farmers. This year, sales from the reserve have been ‘very strong’ with the base sale price reaching nearly 90 cents a pound, suggesting ‘demand is more broadly-based than previously considered,’ USDA said.
India, the largest cotton producer, has been importing bales to replenish supplies after exporting heavily last year. Cotton farmers in India have also been battling a damaging pest called whitefly.
Due to crop damage in major producing states, India’s cotton output is likely to decline 12.4 per cent to hit the lowest in five years for the current crop year (October 2015–September 2016).
Recently, the Cotton Advisory Board (CAB) under the Union Ministry of Textiles lowered the forecast it had made in February, saying the picture was now clearer. Output is now estimated at 33.8 million bales (a bale is 170 kg) for the current crop year, as against 38.6 mn bales the previous year (when drought had hit many states). The CAB had constituted three Sub-committees in its last meeting held in February last.
The sub-committee on prices recommended the format for compilation of prices and price reporting may be gradually shifted to metric system. For prices it recommended to refer to 29 mm length cotton indicating CAI’s spot prices, ICF prices, MCX Futures along with cot look prices. The Sub-committee on best practices on cotton farming is working and is likely to submit the report in next CAB meeting.
Its February forecast was 35.2 mn bales. Due to the expectation of less output this year, there has been a rise in prices; the benchmark Shankar-6 variety has increased by 35 per cent in five months, to Rs 12,710 a quintal at present. This is the highest since October 2013. As a result, garments are likely to get costlier.
Nandan Denim is in the midst of expanding its capacity from 99 million metre per annum (mmpa) to 110 which would come on stream in the next three months, according to the company's president Govind Sharda.
Sharda said the company expects volume to grow at 6-7 per cent in FY17. The company will see higher realisation due to more value added products. The current share of the value added products is expected to be less than 10 per cent and realisation is around Rs 135-136 per metre for the denim fabric.
Currently, the company is operating with a capacity of 99 million meter and another three months they will be operating at 110 million meter. They are also working on building up the spinning capacities for our backward integration. So they expect all this to happen by August and September 2016.
As far as denim manufacturing is concerned, Nandan Denim was originally targeting June but was having some bit of ambitious calculations, but now the revised target is that by September end the company will be having 110 million capacity.
North American apparel brands and retailers’ group have decided to stay with readymade garment (RMG) sector in Bangladesh despite the terrorist attack on July 1 that saw the killing of 20 people including 17 foreigners. In a conference call for journalists, James Moriarty, country director for the Alliance for Bangladesh Workers Safety, the platform of North American buyers and brands said that many major brands were desisting sending foreign staff to the country although most had Bangladeshi or South Asian staff leading their operations in the country.
On behalf of the Alliance, Moriarty, a former US ambassador to Bangladesh, expressed his sympathy for the people affected by the recent violent attacks in Dhaka mainly the victims, the loved ones of those who lost their lives or were wounded, and the members of the community who were rocked by this attack. Moriarty further said that in spite of this tragedy, the Alliance and our member companies will continue to stay with the RMG because improving safety for the millions of men and women who make a living in Bangladesh’s garment sector is a moral imperative.
The Pakistan’s textile industry is likely to be exempted from load shedding, the textile industry was vying for resumption of load shedding by the end of the holy month of Ramadan but no decision was made by PEPCO the authority despite availability of surplus power.
Surplus power was available but the secretary water and power had left for Karachi well before Eid, therefore the decision to resume power supply to the textile industry was deferred till his return, the sources added. It may be noted that the Ministry of Water and Power had withdrawn exemption from load shedding to the textile industry with the start of the holy month of Ramazan. The textile industry was exposed to 10 hours a day load shedding, starting half an hour before Iftar and resuming half an hour after Sehri.
The relevant quarters had well-informed the authority that surplus power would be available during the Eid holidays due to reduced power consumption both by the domestic and commercial consumers. But the authority kept delaying the decision, apprehending any untoward situation in case the domestic consumers face in any trouble due to power supply to the industrial sector.
The Bangladesh garment industry has generated exports worth $28.09 bn in 2015-16 with a 10.21 per cent growth from the previous year, according to a data of the Export Promotion Bureau. The growth has been attributed to political stability during the year, increased productivity, entrepreneurs’ resilience and improvement of workers’ safety standards in factories, according to exporters and analysts. Data released yesterday shows earnings also exceeded target $27.37 bn set for the year. Of the total figure, the knitwear constituted $13.35bn and woven products $14.74bn.
Siddiqur Rahman, President, Bangladesh Garment Manufacturers and Exporters Association (BGMEA) points out, though profit margin declined, manufacturers didn’t stop taking work orders. Hence one has to give credit to them for seeing an even better export growth in the country’s garment sector. He added that the start of manufacturing of high-end products by some entrepreneurs and the increase of workers’ productivity also contributed to achieve healthy export earnings.
Bangladesh earned over $34bn from exports in the 2015-16 fiscal and registered around 10% growth compared to last year. The figure also exceeded the export target set for the year by $743m.
