A fall in world cotton prices and a change in European Union import rules have hit Bangladeshi's textile mills, a business leader said.

"We are forced to stockpile our products as the cotton price in the international market over the past a year reduced by more than 50 percent," said Jahangir Alamin, president of Bangladesh Textiles Mills Association (BTMA).

The sector was also hit by the EU's relaxation of its rules of origin from January 2011 for exports of readymade garments by Bangladesh which allowed imported yarn and fabrics to enjoy duty-free and quota-free access to the EU market.

"The new rule encouraged the garment manufacturers of Bangladesh to import cheaper yarn and fabrics from neighboring countries, especially India meaning a huge amount of locally-produced yarn unsold," Alamin told Reuters.

The previous EU rules of origin had protected textile mills, as it required exporters to buy the bulk of their fabrics from Bangladesh in order to enjoy duty free benefit to the EU.

"As a result, Bangladeshi millers have a stockpile of 2.5 million tonnes of unsold yarn, " Alamin said.

Bangladesh imported 278 million kg of yarn and fabric in the first half of 2011, which is 25 percent higher than in the same period of last year, according to government and BTMA statistics.

"Since the depression of yarn market caused by the drastic fall in the global cotton prices, the manufacturers were forced to sell off their products at rates much lower than the production costs," the chief of BTMA said.

The global cotton price, after remaining stable for almost a decade, suddenly shot up from 62 cent per pound to $2.5 in March 2010. It had remained at that level until August 2011 and then fell to $1.2 to $1.3 per pound.

But the price of locally made yarn was $3.5 to $3.75 per kg, much lower than its production cost of $7 per kg.

Alamin said that cotton-exporting India frequently changed its trade policies according to demand but Bangladesh did not take any measure as such, which affected its competitiveness.

He said that, despite the relaxed EU rules of origin for Bangladeshi apparel export, a severe power and gas crisis hindered them from optimal utilization of their production capacity.

There are more than 1,300 primary textile manufacturing factories in Bangladesh's textile sector with a total investment of more than $4.0 billion. (Reuters)