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  • 6.1.1-MARKET PROFILES-BANGLADESH-THE STRUCTURE AND CHARACTERISTICS OF THE DOMESTIC COTTON MARKET

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  • The structure and characteristics of the domestic cotton market

    Chapter 6 - Market profiles - Bangladesh 

     
     
    The textile sector has emerged as a dominant player in the economic development of Bangladesh. The emergence and meteoric growth of the highly labour-intensive ready-made garments (RMG) sector in the last two-and-a-half decades significantly encouraged the development of the capital-intensive primary textile sector (PTS) in this country. In the financial year ending June 2006, Bangladesh’s total exports amounted to $10.526 billion, in which the contribution of the textile sector (comprising mainly RMG and knitwear) was $8.10 billion, i.e. 77% of total national exports. Even in 2006, one year after all quota restrictions on imports of garments into the world market were removed, exports of RMG registered a growth of 21.6%.

    Future market developments – demand and supply forecasts

    The changing composition of RMG exports from Bangladesh in the recent years has created a steady demand for yarn and cotton in the local market. The share of knitwear in 2006 approached half of the total export of RMG, up from a meagre 10%–15% share in the early 1990s. This shift has taken place primarily because of two reasons: the necessity of establishing backward linkages to improve delivery response time for effective competitiveness; and the relatively small investment that is required to establish these linkages in the knitwear sector. Investments in composite knitwear manufacturing units have gained momentum in the last 8–10 years, creating substantial demand for good quality yarn and in turn demand for cotton for spinning.

    Apart from the shift towards knitting that is boosting the development of the spinning sector, the RMG sector as a whole is also showing signs of positive future growth. This trend is likely to prompt further expansion of the spinning sector and in the process develop new markets for cotton.

    The Government of Bangladesh has set export targets for the RMG sector up to 2008/09. While actual exports of textile and clothing (T&C) products in 2005/06 stood at $8.10 billion, the targets for the subsequent three years have been set at $8.87 billion, $10.24 billion and $12.06 billion respectively.

    Supply and demand in the national market

    Cotton spinning mills are the primary users of cotton. Therefore, any assessment of demand for cotton in the domestic market is dictated by the present size and future growth potential of the spinning sector. We shall therefore look at the present status of the spinning industry in the country, its past growth pattern and the factors that may influence acceleration of this growth in the near future.

    Growth history of the primary textile sector in Bangladesh

    The private-sector-led growth of the PTS in Bangladesh is a relatively new phenomenon. In the spinning subsector, there were only 853,000 spindles in 1972/73, largely owned by the public sector. In the early 1990s, investment in private enterprises in this sector gained momentum and in the following 10 years capacity almost doubled, from 2,388,000 to 4,360,000 spindles. This growth gained impetus from the opportunities opened up by the then burgeoning RMG export sector.

    Present status of the spinning sector

    In July 2006, there were 237 spinning mills with 5.3 million installed spindles. Over 300,000 spindles were under installation and according to the Bangladesh Textile Mills Association (BTMA); another 1.4 million spindles were in the pipeline. Once all these spindles come into operation, there will be a quantum leap in the spinning capacity of the country. Growth in the previous two years had been 21%, from 4.4 million spindles in 2003/04 to 5.3 million in July 2006. According to BTMA, currently a new mill springs into operation almost every month. For denim production alone, BTMA estimated that the present 28 million metres produced in Bangladesh (July 2006) would go up to 180 million metres by the end of 2006, because of new investments that were taking place.

    Yarn supply situation and future demand

    Yarn production in Bangladesh is growing at the rate of 10–12% a year. In 2003/04, yarn production reached 380,000 tons. On a conservative estimate, this would mean that the country consumed almost 435,000 tons of cotton to produce that quantity of yarn.

    However, USDA estimates that mill consumption of cotton increased from 375,000 tons in 2003/04, to 410,000 tons in 2004/05 and 480,000 tons in 2005/06 (August–July).

    BTMA estimates that by 2008/09 the total demand for different types of yarn will reach 1.1 million tons, to meet both local demand and demand stemming from exports of RMG. Assuming that 70% of this yarn requirement would be produced in Bangladesh, the total requirement of cotton for the spinning industry would then be about 870,000 tons.

    There is a shortage of spinning capacity in the country to supply the RMG sector. According to BTMA, in 2005 yarn requirements were around 1,040,000 tons (640,000 tons for export and 400,000 tons for the domestic market). Out of this, 550,000 tons were produced in Bangladesh. The gap of 490,000 tons is planned to be reduced through new investment in extra spinning mills. These mills, once set up, will consume another 300,000 tons of cotton within the next 2–3 years.