Rapaport Magazine

India

By Zainab Morbiwala
Pressure Cooker

The devaluation of the rupee, coupled with a steep increase in rough prices that is getting resistance from buyers, has left the diamond industry reeling — and swimming through some very rough waters to survive.

An Air of Negativity
   Mihir Jhaveri, partner, Tanvir Kumar Diamonds Ltd., described it as “a situation of wait and watch for all of us. Sentiments are low and the majority of us are facing an acute liquidity crunch.” Speaking in advance of the Hong Kong show, he said he was “hoping we can get some good orders there. Overall, otherwise, there isn’t much movement of goods.”
   In an effort to try to resolve the current crisis before it worsens, the Gem and Jewellery Export Promotion Council (GJEPC) has formed a committee of experts to suggest measures for the industry. Speaking exclusively to Rapaport Magazine, Vipul Shah, chairman of GJEPC, said, “We have invited people from each segment — small, medium and large — to come forward and share their suggestions on a way forward. We will have a few rounds of meetings and then decide what needs to be done in terms of whether rough imports should continue or if they need to be stopped for now so that the suppliers of rough come forward to stabilize prices at levels the market can accept.”
   The Times of India newspaper reported that GJEPC already had convened a meeting of the industry stakeholders, especially the Diamond Trading Company (DTC) sightholder companies from Surat and Mumbai, to discuss the impact of the weak rupee. “Most of the diamantaires opined that the industry should collectively stop buying rough diamonds from mining companies to survive the onslaught of the weak rupee and the phenomenal increase in the rough diamond prices. Tight liquidity has forced manufacturers to refuse the high-priced rough supply.” The DTC sightholders reportedly rejected 20 percent to 25 percent of the approximately $600 million worth of rough on offer at the De Beers August sight.
   Divesh Navadia, president of the Surat Diamond Association, was quoted by the newspaper as saying, “The situation has turned from bad to worse. There is a severe liquidity crunch in the market and now the manufacturers have started pressuring the traders to make their payments. We have appealed to the manufacturers not to pressure the traders for payments.”

Confidence Battered
   Talking about the loss of consumer confidence, Jay Sagar, partner, Pransukhlal Jewelers, agreed with Navadia that because of the dollar-rupee disparity, “People aren’t ready to spend on diamond jewelry.” Sagar feels that bigger players are in a position to manipulate the market because they have buying power, whereas smaller and medium-size players cannot afford to buy rough at the current prices. “It is time that the entire industry realizes that we all have to work as a team and it is only then that we will be able to avert the crisis at hand,” Sagar said, adding that “I find it ridiculous that a 3 percent import duty is being levied on diamonds. We need to do away with it. It is affecting the business.”
   Another threat to the industry that was cited by Sagar is the increase in the manufacturing of synthetic diamonds. “I want to specifically tell those industry colleagues who are into manufacturing synthetic diamonds that it is dangerous for the entire diamond industry that synthetic diamonds are being promoted. Lured by the short-term gains, the players are ignoring the long-term peril that this move can mean for the industry.”

Market Dynamics
   As for the movement of goods in the market, Jhaveri said, “VS and SI are moving right now. The demand for better-quality and better-color goods is low.” Shah added that although “the U.S. market is showing signs of improvement, the demand for high-end goods isn’t in the cards right now.”
   Another factor worrying Indian manufacturers is the growing markets for diamond polishing in Hong Kong, Taiwan and China. Because these locations have lower taxes imposed on them, they are in a position to offer better rates than India. It is reported that the cost of manufacturing in these centers is 10 percent to 12 percent lower than in India.
   Shah reiterated that it was time for the rough suppliers to understand that manufacturers in India are under tremendous pressure and it is critically important for them to bring their prices down. He minced no words when he warned that if the current situation is not brought under control, it will become far worse than what the industry is facing now.

Article from the Rapaport Magazine - October 2013. To subscribe click here.

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