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India
By Zainab Morbiwala
The line has been drawn in the sand. The tug of war between Mumbai and Surat seems to have taken a sudden, unexpected turn with the news that approximately 50 big diamantaires are bidding adieu to Mumbai and relocating their base to Surat. In other news during May, the Surat Rough Diamond Sourcing (Indian) Ltd. (SRDSIL), a cooperative venture that was launched just a year ago, announced it could no longer sustain itself and was bought out by one of its founders, Ashit Mehta of his self-named company. The double-barreled news reports shook the solidarity of the Indian gems and jewelry industry. Commenting on the relocation rumors, Vipul Shah, chairman of the Gem and Jewellery Export Promotion Council (GJEPC), minced no words when he said, “I am neither for it nor against it but it would be much appreciated if the trade bodies are taken into confidence. We have not had any of the companies either approach the GJEPC or the Mumbai Diamond Association about this.” Shah had no comment on the SRDSIL, noting that it was a private entity with no connection to the GJEPC.
The companies planning the move to Surat reportedly represent more than 70 percent of the Mumbai diamond trade. Sources said the relocation was spurred by the unaffordably high rents being charged in Mumbai. Diamantaires have reportedly formed a private limited company for the Surat diamond market project, which could be operational by the end of 2014. One downside to the new location is the absence of an international airport in Surat. Initially, diamond companies are planning to work with logistics companies to ship product through Mumbai in cargo planes. “Surat will soon have a full-fledged diamond operating center like what Mumbai has at the Bandra-Kurla complex,” Dinesh Navadia, president of the Surat Diamond Association, told Rapaport Magazine. “Right now, we are in the process of calculating the costs involved, logistics required, etc. Once we have this in place, we will begin work on building the entire structure. The aim is to have a center that is a one-stop solution for the entire diamond trade, eliminating the hurdles faced by small and medium-size enterprises.”
SRDSIL was a cooperative movement in sourcing diamond rough designed to eliminate traders from the value chain. It was formed by 35 investors, seven of whom contributed almost $1 million each to the initiative. The other, smaller investors contributed between $80,000 and $160,000 each. The price paid by Mehta has not been disclosed. According to industry sources, there were several reasons the company could not sustain its operations, including high operating costs and a decline in interest among the investors. In an interview with Business Standard, a business daily, Chandrakant Sanghavi, chairman of Sanghavi Exports and a founder and director of SRDSIL, said, “We had some policy-level issues with the government to import rough from other countries, mainly from Brazil. Moreover, higher distribution cost also made it unviable and the investors decided to close the company in 2013.” At the beginning, SRDSIL did show promise. Its first auction, in July 2011, sold rough valued at more than $14 million. But the results of the second, conducted in February 2012, were disappointing, selling just $2.5 million worth of rough. The success of cooperative ventures is highly dependent on the active involvement and support of industry members.
Against the backdrop of this negative news, Shah asked the industry not to get bogged down in pessimism, especially since the market seems to be opening up to good demand from the U.S. and Europe. Commenting before recent elections in India, Shah noted that “Once the results are out and we witness a stable government, it will help consumption in the domestic market and produce a robust mood within the industry as well. As of now, we are looking forward to the Vegas show.” This year, the Indian Pavilion at the show is expected to attract more traffic because it has been redesigned with a fresh look. The Indian delegation to the show includes 65 exhibitors plus a GJEPC booth. On the domestic market, more diamond jewelry is being purchased as investments. “Diamonds are finding their sparkle in the buying patterns of people in India and that is good for the industry overall,” said an industry spokesperson, who asked to remain anonymous. Still, a matter of concern is “the traditional custom of visiting a local family-owned jewelry store to purchase jewelry. These local jewelers do not educate customers on the various cuts and colors and their resale value. There needs to be a strict certification program in place for diamond jewelry in India.” In other positive news for the industry, the United Nations lifted the ban on rough diamond imports from the Ivory Coast, encouraging expectations that the new source will help to bring rough prices under control and stabilize the industry’s rough supply.Article from the Rapaport Magazine - June 2014. To subscribe click here.
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