Production cost of per kilogram yarn and fabrics will go up by Tk 6.66 and Tk 7.61 respectively as new gas tariff takes effect, ultimately hitting the $34 billion apparel industry.
The rise in production cost, caused by sharp increase in gas prices, may prompt apparel manufacturers to import yarn and fabrics from where it will cost less, the sector people have said. As of now, Bangladeshi fabric producers are meeting 95% of the demand of knitwear sector while 40% of woven sector.
According to a rough estimation of Bangladesh Textile Mills Association (BTMA), new gas price will increase production cost of per kg yarn by Tk 6.66. At the current tariff rate, it takes Tk 21.81 to produce a kg of yarn, which was Tk 15.15 at the previous rate. On the other hand, the production cost of per kg fabrics also would increase by Tk 7.61 to Tk 24.93, which was Tk 17.32 at previous rate.
On June 30, the Bangladesh Energy Regulatory Commission (BERC) issued a circular increasing gas prices at different rates effective from July 1.
For industrial use, gas price has been increased by 37.88% from Tk 7.76 to Tk 10.70 per cubic metre, while for captive power it has been increased by 43.97% from Tk 9.62 to Tk 13.85.
Gas price for the power sector has been increased from Tk 3.16 to Tk 4.45 per cubic metre with a 40.82% rise.
Talking to Dhaka Tribune on the recent sharp hike of gas prices, especially for the captive power and industrial consumption, the primary textile sector people have expressed deep concerns.
They fear that it will encourage import of fabrics and yarn from other countries offering lower prices and the ultimate loser will be the apparel sector.
“From the current fiscal year, the government is implementing VAT. In this context, a sharp rise in gas prices will put a huge burden on the textile and apparel sector, pushing up the production cost,” Bangladesh Textile Mills Association President Mohammad Ali Khokon has told Dhaka Tribune.
“In addition, in the apparel sector compliance has already cost huge but prices of finished goods did not increase. So the rise in gas prices would leave the textile sector, highly dependent on captive power, in tougher competition,” Khokon points out.
In the given situation, the government should have increased the prices of gas gradually, which would not put pressures on the manufacturers at a time, he added.
Meanwhile, fabrics manufacturers have observed that supply chain of apparel raw materials may be hit by the gas price hike.
“Supply of yarn and fabrics from local sources is a blessing for the country’s apparel exporters as it reduces lead time and ensures low cost,” Abdus Salam Murshedy, managing director of Envoy Textile, has told Dhaka Tribune.
The sharp rise in gas prices will hit the country’s textile industry hard and it will ultimately deal a blow to the apparel sector, Salam warns.
Currently, local fabrics manufacturers are providing almost 100% supply for the knitwear sector, while about 40% for the woven industry, which is growing very fast.
“In the present context, the sharp rise in gas prices will hurt the growth of the sector especially the woven fabrics manufacturers. So the government should rethink the gas prices considering the contribution of textile industry,” says the former BGMEA president.
The apparel makers have already projected that that the production cost of apparel sector will go up by 1%, which will hit the competitiveness in global market and make it difficult to sustain the present export growth.
“In the just concluded fiscal year, Bangladesh apparel export has registered a double digit growth. The new gas price will make it difficult for the sector to sustain its growth,” Mohammad Hatem, a former vice president of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), has said.
As per the BTMA, there are 430 yarn manufacturing mills, 802 fabrics manufacturing mills, and 244 dyeing-printing finishing mills in Bangladesh, along with 32 denim fabrics manufacturing mills and 22 home textile manufacturing mills.