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India Matters


Aug 23, 2012 10:50 AM   By Avi Krawitz
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RAPAPORT... The annual India International Jewellery Show (IIJS) has surprisingly set the tone for ‎what followed in the global diamond market in the past two years by going against the ‎grain of expectation. ‎

In 2010, suppliers held their prices firm after a quiet summer, which, encouraged by a ‎strong Diwali festival, sparked a trading and price frenzy that lasted until the following ‎IIJS. Perhaps it’s the timing. July and August tend to be a tricky period for the trade with ‎dealers in the U.S., Belgium and Israel taking vacations, presenting an illusion of quiet in ‎the market, whether real or not.‎

But in 2011, the market peaked in July and the Indian industry showed its first signs of ‎cracking at IIJS. Liquidity became problematic and global economic turmoil shook ‎confidence. Last year’s Mumbai show failed to meet expectations and buyers demanded ‎lower prices due to financial uncertainty. Diamond prices have been on a steady decline ‎ever since.‎

The downtrend has continued until today and the prevailing weak Indian market ‎sentiment has kept pre-show expectations low. In fact, many expect slow trading to put a ‎dampener on the event and to continue through to the September Hong Kong show, the ‎next market indicator and an important gauge of Far East demand.‎

As the largest diamond cutting and polished trading center, India exerts substantial ‎influence over the rest of the market. Therefore, while traders across the globe may be ‎struggling with their own economic pressures and uncertainties, they are keeping a ‎watchful eye on Mumbai ahead of the fourth quarter. ‎

They suspect that if polished suppliers lower prices at IIJS they will ultimately follow suit. ‎Furthermore, they will be noting the extent to which Indian buyers are active in the ‎market. ‎

Hopes are not high, with good reason. It has been an especially challenging year for the ‎Indian industry. While a decline in foreign demand has hurt exporters, domestic demand ‎‎– which served as a saving grace for the local diamond trade in previous crises – has ‎slumped. ‎

Economic growth has slowed and the rupee has dramatically depreciated against the ‎U.S. dollar – losing about 25 percent of its value in the past year. High inflation has ‎ensued and the cost of living has increased. Lower than average rainfall during the ‎Monsoon season - which continues for about another month - has compounded the ‎economic challenges, affecting the country’s all-important agriculture sector, not to ‎mention basic water supply to its vast population.‎

Consumers are understandably holding back. Furthermore, their penchant for gold, both ‎as a discretionary purchase and as an investment, is on standby as the weak rupee ‎pushed local gold prices to record levels above INR 30,000 per 10 gram.  During the ‎second quarter of 2012, India’s total gold demand fell 34 percent year on year to $9.38 ‎billion in the second quarter of the year with gold jewelry demand down 26 percent to ‎‎$6.46 billion, according to the World Gold Council (WGC).‎

Government measures to strengthen the rupee and reduce its escalating current account ‎deficit have not helped the diamond and jewelry trade (see editorials ‘Protecting India’ ‎and ‘Rupee Insecurities’). A 2 percent import duty on polished diamonds served to curb ‎round-tripping – the practice of re-importing stones to procure additional bank financing ‎using them as new export transactions – but has also diminished India’s competitive ‎edge. The tax is a deterrent for foreign companies to operate in Mumbai and fewer Indian ‎buyers are traveling abroad to source goods. ‎

The result is that while the Indian government famously helped the diamond industry ‎flourish after the 2008 downturn, it’s a constraining force in today’s challenging market. ‎The traditionally Indo-centric Mumbai market has become even more insular. ‎

In the weeks leading up to IIJS, which started on Thursday (August 23), diamond dealers ‎were therefore cautious. Rumors are rife around Opera House about companies in ‎financial difficulties and smaller operations are shutting their doors. Manufacturers are ‎being squeezed by high rough diamond prices and liquidity is tight, while diamond ‎manufacturing is below capacity, having declined further in the past two months. Still, ‎polished inventories are reportedly high as buyers are reluctant to buy out of fear the ‎market has not yet bottomed out.‎

And that’s what traders are hoping to find out in Mumbai this next week and next month ‎in Hong Kong. Is there some pent up Indian demand waiting to emerge around ‎November’s Diwali festival and the fourth quarter wedding season? Will that spur greater ‎confidence among Far East buyers? Or will demand remain tentative and prices soften ‎further?‎

Much depends on the rupee, which has encouragingly shown signs of stability in the past ‎few weeks. A sustained currency will help restore confidence among consumers and in ‎the trade, and hopefully signal a better than expected Diwali season. More affordable ‎rough will also enable more profitability and loosen liquidity. ‎

But for now, market sentiment hints to a downtrend and suppliers are not banking on a ‎boom show. Rather, the next few days are expected to reflect India’s challenging ‎environment and the cautious mood that has defined the global industry in the past few ‎months. Unless of course, IIJS once again bucks the trend, as it has in the past few ‎years, and signals a positive turn in the market. Stranger things have happened and IIJS ‎has a tendency to surprise. But few are betting on it. Expectations for the show are low, and should India’s problems persist, so will challenges for the rest of the market.‎

The writer can be contacted at

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Tags: Avi Krawitz, diamonds, IIJS, India International Jewellery Show, jewellery, Jewelry, Rapaport, Rupee
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