The introduction of warehousing facility for cotton trade will immensely benefit the country's spinners, as it will reduce lead-time and ensure the timely sourcing of the fibre, industry people said.
Under the facility, merchants from different countries will store cotton at warehouses at Chittagong port to sell to the local cotton importers and spinners. The merchants can also re-export the cotton from the port to other destinations.
The system is already in use by the Chinese government, which is the largest importer of cotton.
Such warehouses would allow spinners to buy cotton at their doorstep and negate the huge risks that come with the long shipment times from origin, said Monowarul Hoque, managing director of Ashik Composite Textile Mills, a cotton importer and spinner.
For local spinners, the time lag between an actual purchase and collection varies from two weeks to 12 weeks, excluding the shipment delays.
It takes two weeks to get cotton from India and Pakistan and up to 12 weeks from the US, and the West African and Latin American countries, excluding the shipment delays.
This lag exposes the spinners to huge market volatility, as cotton prices tend to fluctuate drastically, he said, adding that the local spinners do not have the means to hedge such risks without the access to futures markets.
The warehousing facility would protect the spinners in a bearish market, he said, adding that in fiscal 2010-11 the entire industry suffered a huge loss as cotton prices rose and fell drastically.
Hoque said, due to long shipment time from origins such as Africa and North America, most local spinners are forced to purchase cotton from India and Pakistan.
“However, such cotton lacks quality, contains high moisture and is often contaminated. The cotton shippers in India and Pakistan only export residual substandard cotton as the top crop is always picked and consumed by their respective local spinners,” Hoque said.
He also said the warehouses would allow spinners to ensure quality.
“A spinner would be able to draw full sample prior to purchase from the warehouse and that would deter merchants from selling lower quality cotton.”
Under the current system, the importers have the leeway to purchase cotton from anywhere in the world and they cannot check the quality and fix the price beforehand.
Furthermore, it would lower the financial burden on spinners, who are forced to operate with huge working capital limits, as they must procure cotton well in advance.
Hoque said Malaysia and Sri Lanka have already opened warehousing facility for cotton trade at their ports targeting the Asian consumers, especially Bangladesh, the second largest cotton importer after China.
On the warehouse facility for cotton trade, Jahangir Alamin, a former president of Bangladesh Textile Mills Association (BTMA), said warehousing is a good option if the system is operated well.
“During the tenure of my presidency in the BTMA, the system was considered several times but it never materialised,” Alamin said.
Manoj Kumar Roy, additional secretary to the commerce ministry, said the government will go for the warehousing route if the move is business-friendly.
Thanks to higher garment exports, cotton imports registered an 8 percent year-on-year growth to 5.6 million bales [480 pounds make a bale] in fiscal 2013-14.
Bangladesh imports cotton worth nearly $3 billion a year from the US, India, African countries and Uzbekistan.
In fiscal 2004-05, the country imported three million bales of cotton, but within a span of ten years the country's consumption doubled, according to BTMA.