India Market Report

RAPAPORT... A wave of optimism is being seen in the Indian diamond industry as players big and small realize that working with the current market conditions is a better approach than simply standing around waiting for things to improve. One positive note: the Reserve Bank of India (RBI) has come forward and asked banks to provide concessional loans along with debt revamping to diamond industry units hit by the global meltdown.

The Press Trust of India reported that the RBI task force asked banks to consider the industry’s request to borrow “against their stocks of polished diamonds held in inventory and to explore the possibility of financing rough diamond purchases” to keep factories open and workers employed in the country’s cutting and polishing industry.



Market Conditions

Players in the market say that it is important to behave sensibly at this time instead of getting swayed into further production. Sharing his views on market conditions, Sanjay Shah, director, Gold Star Diamond Pvt. Ltd., said, “Though the market was strong at the manufacturing and trading levels, the consumer level of the market was never that strong. The factory production schedules for jewelry and diamond cutting assumed a certain level of business and there was heavy investment in the infrastructure setup and expansion. With such huge overhead expenses, each company needs to do a certain amount of turnover to come to a breakeven point. Polished sales are not yet strong. And if we see the prices increasing still more, then buyers will be even more reluctant to buy — the market simply will not buy diamonds at prices any higher than they are now.”

“So, in short, we should not get excited by any positive news and we should wait for things to stabilize,” Shah explained further. “In a volatile market, things can swing in any direction and we could get hurt again. It is true that rough prices have seen an increase but it is not due to demand in polished; instead, it is due to short supply. At the same time, polished is slow and buyers are looking only for special deals. With any increase in polish prices, we will detour the consumers away from buying diamonds.”

Shah’s advice to the industry is: “Be patient, do not increase production and do not spend more on rough prices. One wrong signal to miners and the industry will be back in a rat race on pricing. We need to give consumers confidence in our market and entice them to buy diamonds.”

Rajiv Mehta, chief executive officer (CEO) of Dimexon Diamonds Ltd., believes that “demand for better-quality rough diamonds will definitely pick up in the second half of 2009. At this moment, retailers are refraining from making large-scale purchases because they are recalibrating their supply chains to the new environment.” Commenting on recent price fluctuations, Mehta explained, “The price fluctuations we witnessed in the first quarter of 2009 were a result of ongoing crises, as well as prevailing buyer sentiment. That, in turn, resulted in a substantial dip in demand for diamonds in almost all key markets. As soon as confidence is restored, we will observe a recovery of prices.”

According to Anil D. Shah, partner, Venus Jewels, the price fluctuations were largely due to inefficient distribution of the rough supply. But in the current market, he sees a win-win situation for companies that have changed their approach to dealing with their customers. “We have found that companies that are more organized and systematic in their approach are achieving steady and sound growth and are reaping benefits from the current situation.”

Impacting the Industry

Mehta cited a number of factors that played a role in the current crisis, including “the lack of demand, speculative rough buying that led to the increase in rough prices, low or even negative margins, high bank debts, delayed payments from customers and a reduction in mining activity that reduced the supply of goods.”

Anil D. Shah said, “Internationally as well as locally, there is a huge demand for high-end diamonds and consumers are becoming more aware of the importance of large-size, well-cut diamonds with better luster, as well as higher standards of cut, polish and symmetry.”

Gold Star’s Shah advises caution going forward. “People are confused and they want to hear only one thing — that the markets have picked up. They want to see business back to the same heights as before, which is, practically, not possible. I feel the resumption of manufacturing at increased levels is not a good idea as there is plenty of polished in the pipeline. Any new production will get in the way of our efforts to maintain prices and produce more profits.”

Marketplace

The sudden weakening of the U.S. dollar against the Indian rupee has slowed the movement of size goods in the local market because sellers are offering smaller discounts.

• Demand is good for stars, -2 and melee in SI+/J+ and slightly less for I1-I2/J+.

• Demand is good for 0.08 to 0.18 carats in SI1+/J+ and for 1/5 in VS+/H+ in the domestic market.

• Demand is average for 1/4 in SI1+/J+.

• Demand is good for 0.40 carats+ in VS+/I+.

• Demand is good for 1/2 in SI+/J+ and for 3/4 in VS+/J+. There are shortages in G-I color and severe shortages in 0.80 carats+.

• Demand is very good for 1 carat in SI2+/K+, with shortages in G-I color.

• There is some demand for 2 carats in VS+/I+.

• Overall demand for 3 carats+ is very slow.

• In fancy shapes, demand is good for marquise and pear below 1 carat in SI1+/J+ and for princess in 0.50 carats+, VS+/I+.

Article from the Rapaport Magazine - June 2009. To subscribe click here.