The highly promising home textile sector of Bangladesh is losing its lustre in the export market as the lingering gas crisis, the volatile exchange rate and the higher production cost are forcing many factories to go out of business.

Home textile export crossed the $1-billion mark in the fiscal year of 2020-21, registering a whopping 49.17 percent year-over-year growth, data from the Export Promotion Bureau (EPB) showed.

The momentum continued into the following year as the shipment of home textiles, mainly bed sheets, terry towels and curtains, rose 43.28 percent to $1.62 billion.

The trend reversed in the last fiscal year as suppliers were hit by the gas crisis -- driven by a lower local production and a cut in the imports of liquefied natural gas owing to a fast depletion of foreign currency reserves – and a significant fall in the value of the taka against the US dollar.

Therefore, the export declined 32.47 percent to $1.09 billion in 2022-23 and the downward trend persisted in the first seven months of the current financial year. The shipment fell 34.37 percent to $454.74 million between July and January of 2023-24.

The demand fall has been the major reason for the business slowdown in the export destinations. Consequentially, the number of home textile mills fell significantly, millers say.

Currently, only eight mills are actively manufacturing and exporting products, down from 38 a few years ago.

The latest blow for the sector stems from the instability in the foreign exchange market. The taka has weakened by about 30 percent against the US dollar in the past two years, making exports cheaper and imports costlier.

Industry people say home textile is mostly a seasonal business. But the positive aspect was international retailers and brands used to place orders for two to three years before the current crisis emerged.

But millers did not book orders for a lengthy period after the government raised the gas price from Tk 16 to Tk 30 per unit in February last year. The move has raised their cost of production immediately and to a large extent.

Home textile production requires a lot of gas to run steam boilers and carry out the dyeing process.

The perils did not end there since industries face uncertainty because any further increase in the price of energy can't be ruled out as the government is under continuous pressure to cut back on its subsidy expenditure to lessen pressure on its coffer.

Consequently, international retailers and brands have started flocking to a ready market in Pakistan to source home textile. The country is strong when it comes to supplying home textile because of its own cotton whereas Bangladesh has to rely on external markets to meet almost the entire demand for the raw material used to make yarn.

The Pakistani currency has also weakened against the dollar: the rupee is trading at 278-279 per USD, which allows home textile makers to sell the items at lower prices.

Khorshed Alam, chairman of Little Group, a textile miller, said the profit margin was 3 percent before the hiking of the gas price. But the production cost outpaced the profit by 5 percent after the gas price rose significantly.

"As a result, home textile millers did not book new orders. This has led to a production fall by 50 percent all of a sudden."

Moreover, Bangladesh's textile millers have lost the market to their Pakistani competitors as the rupee has been over-devalued for many years, he said.

Alam gave the example of a local home textile miller that used to pay Tk 64 crore as the gas bill a month whereas the expenditure has rocketed to Tk 126 crore now.

"This has significantly raised the operational costs and affected the company's profit margin as a consequence. This has also forced the firm to stop taking in new orders like it did in the past and has halved the production capacity to remain competitive in a volatile business environment."

The cost of funds for entrepreneurs has also increased after the central bank withdrew the 9 percent lending rate ceiling in June following maintaining it for more than three years.

Noman Group, the largest home textile producer and supplier in Bangladesh, saw its production fall by 30 percent due to lower demand. The Russia-Ukraine war and the latest Middle East crisis have also hit the exports.

Currently, the company ships goods worth $22 million a month on average. It was $32 million a few months ago, according to Md Shahidullah Chowdhury, executive director of the group.

He said Noman Group used to export $1.2 million worth of home textile to Russia before the war broke out. It has come down to zero.

"Similarly, the export to Europe also declined because of higher inflation."

Due to the volatile exchange rate and the gas crunch, some big home textile companies have closed in the last few years, according to Monsoor Ahmed, chief executive officer of the Bangladesh Textile Mills Association (BTMA).

BTMA President Mohammad Ali Khokon warns if the gas situation does not improve, more textile mills might close soon.