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Further gas price hike to hurt spinners: BTMA

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by April 27, 2016 General

Cotton spinners yesterday expressed concern over the proposed gas price hike for captive power plants, as they fear a massive loss in competitiveness if the price is raised any further.

“The spinning sub-sector will be in trouble if the government increases the gas price again. Bangladeshi spinners will face pressures as international yarn producers will then supply products to the local industry at lower prices,” said Tapan Chowdhury, president of Bangladesh Textile Mills Association (BTMA).

Chowdhury spoke at a press conference at the two-day World Cotton Outlook Summit that began at the Westin Hotel in Dhaka yesterday.

IBC Asia, a Singapore-based event management firm, and BTMA jointly organised the summit being participated by 150 cotton traders, spinners, weavers, importers and exporters from all over the world.

The government proposed to increase gas price by about 130 percent to Tk 19.22 per cubic metre for captive power plants from Tk 8.36 at present.

The government had last increased the gas price in September last year to Tk 8.36 per cubic metre from Tk 4.36. At that time, the profit margin from the sale of yarn declined to below $1 per kg, according to industry insiders.

For sustainability in yarn trade, a mill requires a profit margin of at least $1. But, it has now dropped to below 60 cents.

Local spinners can currently meet 90 percent of the demand for raw materials of the knitwear sub-sector and 40 percent of the woven sub-sector. The rest is met through imports, mainly from China and India.

If the gas price is hiked, spinners will not be able to supply the raw materials to the knitters and garment makers at competitive prices, Chowdhury said. In this case, the local garment makers would depend on imported yarn.

The demand for local yarn is higher due to a shorter lead time and better quality, he said.

Currently, more than 400 mills have a spinning capacity of 10 million bales of cotton (one bale is equal to 480 pounds or 218 kilograms); they cannot use their full capacity due to higher power prices, and the interrupted and inadequate supply of power and gas to production units.

At present, Bangladesh imports 6.1 million bales of cotton a year and the local growers can supply only one lakh bale. Chowdhury said a majority of the demand for cotton in Bangladesh is met through imports from India.

Cotton imports from India increased 36 percent year-on-year to 2.99 million bales in 2015. In the same year, Bangladesh imported 6.1 million bales of cotton, 49 percent of which came from India. Due to the higher quality, lower price and shorter lead-time, India has become the largest cotton sourcing country for Bangladesh, Chowdhury added.

Md Fazlul Hoque, vice-president of BTMA, also spoke.

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