News

Advanced Search

India Show Meets Low Expectations

Weak Rupee Weighs on Diamond, Jewelry Demand

Aug 12, 2013 4:58 AM   By Avi Krawitz
Comment Comment Email Email Print Print Facebook Facebook Twitter Twitter Share Share
RAPAPORT... Diamond trading met exhibitor's' low expectations at the India International Jewellery Show (IIJS) as sales fell below 2012 levels. While the weak rupee affected buying trends and prices, traffic was steady and buyers were looking for goods.

“No one was selling cheap and price levels were more influenced by the rupee,” said Kaushal and Hermal Kothari, partners at Stellar Exports, a Mumbai-based polished diamond supplier.  “Buyers were pushing for higher discounts and there was a notable difference between buyers’ offers and sellers’ asking prices.”

In general, exhibitors reported that a compromise was reached with prices softening slightly as suppliers sought to close deals.

Kothari explained that many polished dealers selling at IIJS could afford to lower their prices by a few percentage points on older inventory since the currency has depreciated in their favor – for example, if a supplier bought polished a few months ago when the rupee was around 55/$1 and is selling at the show when the currency is around 61/$1, their original purchases appreciated in rupee terms. Diamonds are quoted in dollars but paid for in rupee in the local Indian market.

The rupee has declined by about 11 percent since mid-May and was trading at 60.5/$1 on Monday, the final day of the show. While a vast majority of buyer traffic at the show consisted of domestic Indian buyers, the weak rupee made supplies at the show more expensive for buyers.

In contrast to polished dealers, Kothari added that manufacturers had other factors to consider, including high rough prices, labor costs and bank commitments.  “We follow what the big manufacturers are doing. We thought they would correct prices substantially but that didn’t happen,” Kothari added. “They compromised by about 2 to 3 percent. There was no panic selling at the show.”

Small Manufacturer Shift

One representative from Venus Jewels, a Surat-based manufacturer, explained that compromise was reached between buyers and sellers when there was serious interest in the goods. He noted that many smaller manufacturers have shifted to buying polished rather than manufacturing rough due to the rising manufacturing costs. “When you consider high rough prices, the rupee, rising labor costs, they prefer to buy from the bigger companies than to manufacture themselves,” he explained.

Ankit Shah of Ankit Gems, a diamond manufacturer, noted that businesses are manufacturing more conservatively and are trying to keep inventory low.  “Manufacturers and dealers have understood that they need to reduce their inventory,” he said.

Anand Shah, the vice president of sales at Asian Star, a diamond manufacturer, agreed and stressed that smaller manufacturers have reduced their manufacturing, while the larger factories have not. “Polished inventory is a bit high because suppliers are trying to hold onto their prices. Demand is there and if you reduce prices, you make the sale,” Shah said. “But rough prices are still steady and polished is not increasing so we can’t compromise too much.”

One Turkey-based buyer noted that it was difficult to find goods at the show because suppliers have reduced manufacturing levels and don’t have the “profitable goods” that he was looking for. Suppliers acknowledged shortages in areas where there are pockets of steady demand, such as 0.30-0.40 carat, VS-SI certified goods.

Weak Economic Sentiment

Many exhibitors noted that weak economic sentiment has resulted in a cautious mood in India.

Apart from the weak rupee, India’s stock market has underperformed with the Sensex index down 5 percent so far in 2013, while the property market is also under pressure. With elections scheduled for 2014, the government is under pressure to reduce the country’s large current account deficit.

While gold imports accounting for an estimated 80 percent of the deficit, according to the Reserve Bank of India (RBI), the government has attempted to curb gold imports to help reduce   the deficit. Accordingly, the government raised the import duty on gold from 6 percent to 8 percent in June and RBI recently tied gold imports for domestic use to exports, which reportedly cut imports available to the domestic market by about 60 percent.

Jewelry exhibitors at IIJS noted that gold importers have refrained from bringing in new shipments due to uncertainty about the future policy. They stressed that the efforts to curb gold imports have also impacted local demand.

Jewelry Sales Okay

“The government is not supporting the industry so people are reluctant to buy,” said Nerav Shah, a sales and marketing manager of Au Finja Jewels. “It has affected consumer’s attitude toward the industry.”

Jitin Sanghvi of Shubh Diamonds, a manufacturer and exporter of diamond jewelry, noted that the decline in imports have resulted in a supply shortage in the country, while gold products are selling at a 5 percent premium in India compared to international markets.
   
Still, the jewelry wholesale section of IIJS was relatively busy, although slower than previous years. “We’re getting sales but not like before and last year was a better show,” said one gold jewelry wholesaler who spoke on the condition of anonymity.  “There has been traffic at the show but fluctuations in gold and the rupee, and the economic slowdown has affected things.”

Tight Liquidity

Exhibitors added that the slowdown has also resulted in tighter liquidity in India, including in the diamond market.

“Because of the slow market in the past two months, liquidity is tight. People have not been selling and bank lending has become more conservative,” said Shah, of Ankit Gems. Many added that recent defaults from two or three larger players in the industry have caused the banks to be extra cautious in lending to diamond and jewelry companies.

Vipul Shah, chairman of the Gem and Jewellery Export Promotion Council (GJEPC), estimated that about 60 percent of bank lending to the industry is to the diamond sector, 15 percent to gemstone-studded jewelry companies and the rest to gold bullion traders. “The banks had a few bad experiences with the industry, mainly connected to gold bullion loans and the jewelers got caught up in that," he said. “So the bankers lost a bit of confidence in the industry.”

He added that bank financing is provided in rupee, which has also made borrowing more expensive for the trade and further affected confidence.

Positive Signs

Still, given the weak environment, the show ended on Monday with most satisfied with the level of trading activity relative to market conditions.

“Given that the market has been very quiet in the past few months we came to the show with very low expectations but we have been surprised,” said Rony Eitany, the president of Regent Diamonds, an Israel-based manufacturer and polished supplier of rounds and fancy shapes in sizes 2 carats and larger. “There was a lot of traffic and decent demand. It wasn’t easy to close a deal but if the buyer needs the goods and I had the right goods, I made an effort to close the deal.”

“Based on that, I think the September Hong Kong show will be good and the market will pick up during the fourth-quarter holiday season,” Eitany added.

Some Diamond Trends Reported at IIJS:

•    Good demand for 0.30 to 0.40 carat, I-J, VS-SI diamonds.
•    Steady demand for 1-carat, I-K diamonds.
•    Demand for 0.70-carat and 0.90-carat goods is slightly slow.
•    Demand for round, VVS+ clarity goods is weak.
•   Good Indian demand for small melee diamonds, G-H, VVS and H-J, SI diamonds.
•    Demand for rounds in larger sizes above 3 carats is slow.
•    Good demand for larger special diamonds, such as fancy shapes above 3 carats and matching pairs in rounds.
•    Rising expectations for Hong Kong show and market improvement in the fourth quarter.
Comment Comment Email Email Print Print Facebook Facebook Twitter Twitter Share Share
Tags: Avi Krawitz, diamonds, IIJS, India, jewellery, Jewelry, Rapaport
Similar Articles
Rapaport LogoRapaport Weekly Market Comment
Sep 19, 2019
Hong Kong show brings fewer visitors, but better-than-expected trading. Serious buyers attending. Fair reflects
GIAGIA Names New Mineral Johnkoivulaite
Sep 18, 2019
The Gemological Institute of America (GIA) has confirmed a new mineral species discovered in Myanmar, which it has
Comments: (0)  Add comment Add Comment
Arrange Comments Last to First
© Copyright 1978-2019 by Martin Rapaport. All rights reserved. Index®, RapNet®, Rapaport®, PriceGrid™, Diamonds.Net™, and JNS®; are TradeMarks of Martin Rapaport.
While the information presented is from sources we believe reliable, we do not guarantee the accuracy or validity of any information presented by Rapaport or the views expressed by users of our internet service.