Industry Hard Hit by High Rough Prices

RAPAPORT... The month of September saw the Indian diamond industry in the limelight with the India International Jewellery Show (IIJS) drawing crowds to Mumbai. Another sign of progress was the setting up of the International Gemological Institute (IGI) in Kolkata, which is the institute’s third laboratory in India. Mid-September also was abuzz with reports that De Beers was eyeing a 51 percent stake in Rajesh Exports – a jewelry maker and retailer based in India — although no official comments have been made.

Rough Prices Not Stabilizing

The industry seems to have been hit hard by the price of rough showing no signs of correction. The rising price of rough is not leading the prices of polished to increase and this is a matter of worry for the players in India, since India is a major polishing hub. Rough prices reflect the fact that there are shortages in supplies — particularly in large sizes, which are in demand — so buyers feel they have no choice but to pay the price. There are no such shortages with polished and there are many players in the market who have goods in their inventories, so buyers feel they are in a position to negotiate without paying higher prices.

Commenting on whether the prices of rough will stabilize soon, Paras Mehta, vice president sales, Dimexon, said, “No, I do not see rough prices stabilizing, as the polishing capacity in India is huge and financing is easily available in this industry. So the prices of rough will not go down. Overall, there is also a shortage in the supply of rough. Demand for rough is huge and demand for polished is very specific from specific markets. I don’t think any manufacturer can sell more than 30 percent of his production by value, thus causing his inventories in polished to go up. This puts pressure on prices and people are selling for longer terms to maintain the price.”

Mahesh Mehta, proprietor, Padma Gems, said, “We are facing problems because of the rough prices increasing since the same is not the case with the prices of polished. It is becoming difficult to convince buyers of polished to pay more, keeping in mind the price for rough.” Pinkesh Zota, director, Diam Circle, feels that the volume of polished in the market is very good but profitability is an issue because of the rough prices going up.

Not seeming too perturbed by the increase in rough prices, Rajendra Dhanuka, director, Naren Gems Private Limited, commented, “If the prices of rough are not stabilizing, then I do not think there is something wrong. It is like the stock exchange. It has to go up as the market moves up. I feel it is a healthy sign that the prices of rough are going up. Look at any other market like steel and iron. The prices there are increasing, so why not for diamonds?”

Market Demand

“Round was always on the top of the line,” Dhanuka continued, “but now fancy shapes are getting better awareness among the Indian people, with pears, emeralds, hearts and princesses leading the way.” Dhanuka attributed the growing demand to the growth of designer jewelry in the country.

In terms of colors, Mahesh Mehta said it is D to F that is selling very well in the Indian market, as well as in international markets. Sharing his views, Paras Mehta said, “This season, we are seeing the sales of better polished goods on a rise. SI, for example, is selling well.” Adding to the demand in the international market, Paras Mehta added, “The international players are demanding I color up.” Talking about international demand, Sunil Shah from Diacentre said, “We see good sales of brown diamonds in Hong Kong and Japan and, in India, there is a growing demand for light brown diamonds.”

Market Developments

Gitanjali Group’s growth and status in the gem and jewelry industry is showing extremely positive signs with each passing day. It has been reported that a string of foreign institutional investors (FIIs), including Citigroup, Morgan Stanley, Goldman Sachs and BSMA, have picked up a combined stake of more than 7 percent in Gitanjali.

To strengthen the diamond market in Surat, the Indian Diamond Institute (IDI) has received an in-principle approval from the Commerce Ministry to set up a state-of-the-art jewelry-training center known as “City Centre.” The facility, to be equipped with state-of-the-art technology and specially designed courses, will be set up at Vesu, some six miles from Surat, at an estimated cost of $3 million.


The Marketplace

• Rupee appreciation has led to a temporary halt on transactions, with traders in a wait-and-watch mode. There are shortages of goods across the board, especially for collection goods.
• SI category is slower compared to better goods and lower piqué goods.
• There is very good movement across the board in -2 and melee category.
• Movement is stable for stars.
• 0.08 to 0.18 carats in VS1+ and I1-I2 are moving well.
• 1/5 and 1/3 sizes are moving well for lower-quality goods, mainly I1.
• 0.50 carats are stable overall, with better movement for SI category.
• 0.70 to 0.99 carats are moving more slowly than they used to and shortages for collection goods persist.
• Demand is stable for 1 carat+, with premium sizes doing very well in better-quality goods.
• Movement is average for 2 to 2.99 carats, with shortages in 2.60 carats+, VS+/I+.
• Demand is very good for 3 carats+ and shortages persist.
• In fancy shapes, marquise is selling very well and rough is commanding a premium due to shortages in supply and less production. Demand for princesses is comparatively weaker.

Article from the Rapaport Magazine - October 2007. To subscribe click here.