Rapaport Magazine


By Zainab Morbiwala
Hoping for Stability

No matter what industry one looks at, hopes and aspirations are always high when it is time to welcome the New Year. And the
gems and jewelry industry is no exception. The players are optimistic about 2013. Their hopes are not only to build a stronger customer base, but also to achieve much-needed stability between demand and supply in rough and polished diamond trade.

   Recent legal actions by Arjav Diamonds provided a not-so-happy closing to 2012, when the company filed a counterclaim against ABN AMRO for $230 million for damages Arjav said it incurred after the bank had Belgian authorities seal the company’s Antwerp safes. The action came after negotiations between the bank and Arjav failed to produce an agreement regarding the diamond company’s reported $154 million debt to the bank.

   “The year 2012 was just all right, with not much to cheer about. But yes, the beginning of December saw a healthy demand for the holiday season, although the second half of December again slowed. VS and SI goods have shown good movement throughout 2012,” said Puneet Shah, director of Shasvat Diam.
   While Puneet Shah tagged the year as “neutral” in terms of market
and consumer sentiment, Sandeep Shah of C. Mahendra Exports Ltd.
was more pleased with the way 2012 shaped up for his company. “It was quite a positive year. The trend that we see now is that the purchase of diamonds is not restricted to owning it as a ‘luxury’ good. Instead, today diamonds are being brought just as you would buy, perhaps, an iPhone. They have become more of a fashion and must-have accessory for
today’s generation.”

   C. Mahendra’s move to the Bharat Diamond Bourse (BDB) also
raised Sandeep Shah’s spirits. “Functioning from the small offices at the Opera House’s Prasad Chambers and other commercial properties set aside for industry players was not very convenient,” he said. “BDB offers a better platform and has an impressive corporate and professional look and feel attached to it.”

   Vipul Shah, the chairman of the Gem and Jewellery Export Promotion Council (GJEPC), in summing up 2012, the year of his election, said: “There has been an overall worldwide decline of about 30 percent in the mining of rough diamonds. This reduction in the supply of rough has had a direct impact on the supply of diamonds to manufacturers who have been unable to utilize their facilities to full capacity. In turn, this has given rise to the need to diversify into jewelry production in order to maintain cash balances and justify the high overhead investments in manufacturing.”
   Continuing, Vipul Shah said, “Manufacturers’ profitability also has not been growing in the past few years. While the cost of rough has seen a steady rise, the costs of cut and polished diamonds have not grown simultaneously to expected levels, thereby creating price volatility. Efforts are being made to stabilize costs with primary producers in a bid to reduce the gap between the prices of rough and the resultant polished diamonds.”
   Overall, the movement of goods is positive for VS and SI, with VVS also moving well, although Sandeep Shah characterized demand for VVS as “a bit slower than expected.”

   Vipul Shah feels that the current taxation system is a deterrent to the gems and jewelry industry’s ability to prosper. “Cumbersome taxation procedures in India have resulted in many Indian diamantaires shifting their manufacturing base to China or adding to their operations there because the Chinese government has been offering tax incentives and a simplified tax structure to the diamond industry,” he explained. “This has led to not only a shift of base for the Indian manufacturers but also has typically resulted in
a reduction in employment generation and export revenue for India. With global economic turmoil continuing and rough diamond prices increasing steadily because of the limited supply of rough diamonds from the mines, polished diamond prices are not growing at the same pace as rough diamonds. That squeezes the margins of the manufacturers, which is a serious constraint.”

   Keeping the 20-year diamond price statistics in mind, Vipul Shah added, “With the substantial decline in overall diamond production, diamond prices are likely to increase in 2013. Diamond prices are poised to rise for the next few years, outpacing gold, in response to increased spending on luxury goods in China, India and the Middle East. That increased spending is outpacing supplies of the precious stone. The industry and government will have to play a greater role in boosting the consumption of diamonds in the world and India through generic promotion of diamonds. That will, in turn, result in growth in India’s diamond manufacturing sector.”
   Sandeep Shah concluded that 2013 will be a much better year because the increased momentum in mining activities and the increased market demand for diamond jewelry will begin to reduce the gap and imbalance between rough supply and polished demand.

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

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