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Bangladeshi Cotton Importers Strangled By Defaults

Bangladeshi spinners and importers recently admitted that their ongoing disputes with cotton shippers and merchants abroad has eroded confidence in their industry. Generally, they contend that their defaults were foisted upon them by unforeseen circumstances and that they are actively seeking amicable resolutions with their creditors.

On July 12th, the International Cotton Association (ICA) published the names of ninety-two Bangladeshi importers who have defaulted since 2002. The list includes spinners and cotton importers against whom claims have been approved by an arbitration authority. These unsettled claims prevent importers from sourcing cotton from other merchants.

“This [being listed as defaulter] is really an edgy issue for our textile industry as spinners are facing problems in sourcing cotton…it is also tainting our reputation in the global market,” said Masud Rana, Managing Director of Asia Composite Mills Limited, a company on the ICA’s list. Mr. Rana is also director of the board of the Bangladesh Textile Mills Association (BTMA), which represents all spinners in the country.

In an exclusive interview with Sourcing Journal Online, BTMA’s former president, A Matin Chowdhury, said that the industry suffered huge financial setbacks after booking cotton stocks in late 2010, when the price of the fiber had suddenly spiraled. Chowdhury’s two large spinning units lost $20 million as cotton prices reversed after experiencing a sharp rise. “Many spinners at that time had committed suppliers on cotton stocks at $2.20 or more per pound and after a couple of months the price had fallen drastically forcing importers to become defaulters.”

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Like Mr. Chowdhury and Mr. Rana, many spinners in Bangladesh believe that 2010 cotton prices were manipulated by merchant syndicates taking advantage of Bangladeshi importers.“Suppliers created panics; they told us that no cotton would be available soon and inspired bookings in a hurry,” said Rana.

Many spinners argue that after the price dropped bankers declined to extend further lines of credit, strangling already ailing importers.Also, they claim that, in response to rapid price declines, yarn buyers refuse to receive orders already placed at the previously higher price.

Bangladesh, the world’s second largest importer of cotton, procures nearly one million tons annually. More than 300 local spinners rely on foreign cotton since local production is meager. Most spinners mainly feed export-oriented knitwear manufacturing units and denim manufacturing units. According to Bangladesh’s Central Bank, the nation’s cotton imports amounted to $2.05 billion for the first eleven months of the fiscal year 2012. Imports rose by more than 18 percent for the same period. Local importers largely buy cotton from merchants in Europe and USA who often hoard their stocks in Uzbekistan, West Africa and other places.

Mohammed Ayub, president of the Bangladesh Cotton Association (BCA), said some Bangladeshi spinners have settled their default claims through negotiations with their creditors. Some of the negotiated settlements append the remaining debt to new orders in installments. Speaking anonymously to Sourcing Journal Online, some industry sources revealed that one major spinner, a prominent home textiles manufacturer,  settled a default claim with merchants and shippers to the tune of $50 million.Larger defaulter spinners are considering similar settlements as the current restrictions on trade are proving too costly to bear.

BCA’s Ayub hopes that swift, amicable settlements will allow Bangladesh to remain a top market for foreign cotton exporters.He informed Sourcing Journal Online that the BTMA is being pressured by the government to settle all open disputes as quickly as possible. Industry representatives plan to discuss the issue in Liverpool at an upcoming conference on cotton, scheduled for October.