BD to gain benifit from falling cotton price

FT ONLINE

Bangladesh's textiles and clothing sector stands to gain, to some extent, from the ongoing trade war between China and the United States.

The benefit will largely be accrued from the declining price of raw cotton.

Bangladesh is the largest cotton importer with 18 per cent global shares, equivalent to over US$ 3.0 billion, according US Department of Agriculture (USDA).

The country imported around 7.0 million bales in 2017. The volume of import is expected to increase further this year.

On the other hand, China is the second-largest buyer of US raw cotton, according to trademap.org, an online repository of international trade by International Trade Centre (ITC).

In response to the US measure, China slapped 25 per cent retaliatory duty on over 100 US goods and commodities, including cotton.

Global commodity prices for cotton have been on a downward trend since then.

The US is one of the largest cotton producers and imposition of tariffs is expected to decelerate the pace of its raw cotton exports.

Cotton prices declined to 85 cents a pound as of 28 June, down by 12 cent from its 52-week peak, according to Business insider.

"Bangladesh is obviously will be a major beneficiary of the supply glut," said Naznin Ahmed, a senior research fellow at the Bangladesh Institute of Development Studies (BIDS), a state-run think-tank.

The US-China trade war has come as a boon to Bangladesh's textiles and apparels, said Ms Ahmed, who is familiar with country's clothing sector.

Garment exporters will get cheaper raw materials as a result of cheaper cotton prices in the international market.

AK Enamul Haque, chairman of economics department at East West University, said the trade war will bring benefit, in part, to countries like Bangladesh.

"If the war causes supply glut of cotton it will be a good thing for Bangladesh," he said.

But in the long run, China might relocate its factories to countries like Bangladesh to avoid higher duty in the US market while exporting.

"We should not forget that the USA is quite smart. It might not work," he added.

Former research director at the BIDS Zaid Bakht predicted that the escalating trade war would drag down global trade.

He said it would deescalate the global trade volume, thus reducing the demand for exports.

On the other hand, garment manufactures said the depreciation of local currency in recent times may impact to some extent as such measure makes the import costlier.

But such depreciation of local currency against the greenback gives financial benefits to the clothing manufacturers when the goods are exported.

"We expect better days are coming as the prices of cotton on the downward," said Abdus Salam Murshedy, managing director at Envoy Textile, a publicly-listed company.

"If cotton prices fall then the fabrics prices will also fall," said Mr Murshedy, a former chief of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the lobbyist group.

He said garment exporters may get increased orders in the coming days.

"We're now leaving out many orders due to lower prices being offered by our buyers and we will be able to pick up such orders," he added.

Qu Qinduo, editorial director of Chinese business magazine China Investment, said Chinese businesses will go to alternative markets for importing quality products for its growing domestic market.

He was sharing his views on the issues over social media.

For importing cotton, Chinese businesses will move towards alternative destinations like Pakistan and India.

He said enjoying various economic reforms, around 400 million Chinese joined the rank of middle-class, constituting the largest such group in the world.

He said China is now the world's second-biggest consumer market, with US$ 5.4 trillion of private spending last year.

Consumption has been the main engine of China's economic growth for the past few years.

Mr. Qinduo said China is going to hold the first ever China International Import Expo in Shanghai in November.

Both Chinese and global enterprises will meet there to showcase quality products for the Chinese market.

"Bangladesh should actively participate in the expo and gain more from the Chinese market as well," he said.

It is believed that the import expo will help China reduce dependency of the socialist country on the markets from where such types of trade war could come.

In the meantime, Turkey and Vietnam which continue to rely heavily on imported long staple cotton for higher thread count yarn will also benefit from the situation.

Neighbouring India and Pakistan, which produce and consume cotton, will benefited as a result of the war as they may get higher demand for their produce from China.

Cotton Association of India has raised its fiscal 2018 estimates for the annual cotton exports by an additional million tonne to 6.5 million tonnes, based solely on orders booked over the past one month.

However, Bangladesh fetched US$ 28 billion by exporting clothing in FY'17, comprising around 90 per cent share of exports.

Around 4.0 million people are directly employed in the country's clothing sector, mostly women.