Despite the fact that the diamond trade is reporting improved demand domestically, as well as from the U.S. and other countries, the month of November proved unsettling for the industry. The reasons: the revelation that three industry players have defaulted in payments to their banks and the continuing ethical controversy regarding diamonds from Zimbabwe.
Holiday Season
Even at this early stage, the holiday season demand from the U.S. is the best it has been in two years. The apex Indian body for promoting the industry, the Gem and Jewellery Export Promotion Council (GJEPC), forecasts that this season will see a rise in diamond demand by a good 15 percent to 20 percent. The cutting and polishing units in Gujarat are expected to work overtime to keep pace with the orders from the U.S. and other Western markets as well. “The diamond cutting units have done well due to stable order flows for Christmas,” said Dinesh Navadia, president of the Surat Diamond Association (SDA). He noted that “trading also has picked up” due to improved consumer and market sentiment, “especially considering the fact that the past two seasons were very poor for the industry.”
Payment Default Cloud
Although it isn’t expected to mar the celebration of the holiday season, the bank payment default by three industry players has managed to shake industry morale. The two companies are reportedly JB Diamonds and Sahil Gems India and the amount they owe to a consortium of banks is said to be close to $452 million. Of that total, JB Diamonds alone is reported to have defaulted on close to $180 million, with State Bank of India (SBI) its lead lender.
Commenting on the issue, Rajiv Jain, GJEPC chairman, said, “No doubt this has been a very unfortunate incident, but it should not make any banks or financial institutions doubt the credibility of the gems and jewelry industry, which has had a good, proven record so far. We have already had one round of meetings with the banks and we plan to meet again on a common platform to draw up strict dos and don’ts to help avoid such unfortunate incidents in the future.”
Extending a word of advice to the players in the industry, Neelesh Hundekari, principal, A. T. Kearney, management consultants, said, “I would suggest that all the players in the diamond polishing industry clearly define the credit period to their clients to avoid any payment defaults on the clients’ part, which, in turn, could make them defaulters with the banks from which they have borrowed money. Also, it is best to check the capital one has at disposal before taking on any additional credit from the banks, in case a situation arises where a client defaults on payments and the supplier is left with no capital to repay the bank.”
Association with Zimbabwe
The news that the Surat Rough Diamond Sourcing (India) Ltd. (SRDSIL) signed a pact with Zimbabwe for the direct sourcing of rough initially cheered the industry, but the enthusiasm was very soon marred by the controversy over the ethical questions surrounding diamonds from Zimbabwe. Recent reports suggest that Marange rough has been sold to four firms from India, but it remains to be seen which firms are involved and if these diamonds have actually left Zimbabwe for India.
“Under no circumstances will we allow the diamonds to enter India if they are not in compliance with the Kimberley Process (KP),” said Sanjay Kothari, GJEPC vice chairman. According to Kothari, the rough diamonds could have been sold to Indian individuals who are not from India, noting that “They could be Indian born who have settled overseas and have their company set up there and no longer hold Indian citizenship.” Kothari emphasized that neither GJEPC nor SRDSIL will allow Indian diamond companies to deal in conflict diamonds, “keeping in mind the larger interest of the global diamond community.”
Speaking on behalf of Gold Star Diamond Pvt. Ltd., company director Sanjay Shah said, “I and my group are against dealing with any sort of rough diamonds that are tainted. Today, India is a strong player in diamonds and there is no reason that we should deal in such goods. If we deal in conflict diamonds, then we are showing our weakness to the world.”
Market Dynamics
In terms of the domestic market, the festival of Diwali appears to have added a lot of sparkle for the industry this year. The demand for lower colors, lower-quality and lower-clarity goods, as well as small-size goods, has been so strong that it is on a par with the export orders, according to industry experts. Jain admitted that “The demand this season in the domestic market was overwhelming.” According to industry sources, there was strong demand for -2 and -6.5 sizes. The demand for lower-quality goods is consistent with the global economy still being in its recovery phase, but industry sources are confident that better-quality goods and bigger sizes will steal the show very soon.
The Marketplace
• Traders were overly cautious in the beginning of November because of the reported financial problems of several local diamond companies.
• The trading market in Mumbai was closed for the Diwali holiday for two weeks and the manufacturing market in Surat will remain closed until December 1, with a few exceptions.
• Following the Diwali holiday, the polished market in Mumbai opened with high asking prices for small bread-and-butter goods, as well as for 1-carat goods across the board in all qualities.
• Sellers are optimistic about demand until the end of the year and expect both local and export demand to continue to rise.
Article from the Rapaport Magazine - December 2010. To subscribe click here.