RAPAPORT... In spite of India’s ongoing Diwali festival, the gems and jewelry industry in the country, particularly diamonds, seems to have lost its sparkle for celebrations of any kind. Even De Beers announced a cut in supply to avoid a crash in the market.
Surat SlumpSurat is witnessing a major crisis. Most affected are the workers who are losing their source of earnings at the diamond-polishing units. Blaming the crisis on the rise in the price of rough is passé, as a new crisis seems to be gripping the city. The problem now is that there aren’t any takers for the produced polished and this has resulted in piles of rough stock.
In a press statement, C. P. Vanani, president of the Surat Diamond Association, said “The Surat diamond industry supplies 60 percent of its polished diamonds to the U.S. annually. This has been reduced to 30 percent and there are no buyers for diamonds, even during Christmas, when the supply usually goes up. Even the Indian market has turned away from diamonds. Around 25 percent of total diamond sales in India happen during Diwali and they are almost negligible this year.”
With no takers for polished, it is believed that, for the first time in history, suppliers have been asked to cut back on their supply. According to Chandrakant Sanghvi, chairman of the Indian Diamond Institute (IDI) and Gujarat regional chairman of the Gem and Jewellery Export Promotion Council (GJEPC), this is being done to minimize stockpiled inventory.
Vasant Mehta, the newly elected chairman of GJEPC and vice president of the International Diamond Manufacturers Association (IDMA), also does not seem very optimistic that conditions in Surat will improve. “Surat, as the manufacturing hub of the Indian diamond industry, is seeing a drop in manufacturing activities, the closure of a few factories and job losses. The effect of all these will be felt even more when the factories open after the Diwali holidays.”
News about China taking on Surat by producing polish at competitive rates is making the rounds as well. Commenting on this, Bhuvan Khimji, general manager of sales for Rosy Blue, said, “A lot of big manufacturers who have factories in Surat have also set up factories in China. As far as manufacturing output is concerned, it is something we should learn from China and try to implement here in our factories. The other major reason for Surat manufacturers losing their sheen is because the rough prices have gone up substantially compared to the polished. The business has become unprofitable.”
Caution PrevailsKhimji admitted that “The diamond market is going through one of the most crucial phases in its history. The present economic slowdown in the U.S. has affected this industry worldwide. It is a time when one needs to be cautious. The slowdown has just started and it will be some time before the markets start moving upward.” As to when a correction might occur, Khimji said, “Anything between six months to a year should be expected. A lot will depend on reactions to the U.S. elections at the end of this year and on the beginning of next year.”
GJEPC appealed to rough producers to curtail the supply of rough diamonds for a few weeks in order to maintain stability and confidence in the diamond market during the current economic turmoil. “It is very vital that we maintain equilibrium between demand and supply and keep global stock and debt manageable during these challenging times,” Mehta said in a statement.
Quick News Round-upAs GJEPC chairman, Mehta succeeds the dynamic Sanjay Kothari, whose two-year helming of the industry in India saw a lot of progress and positive government intervention. A great deal is expected from Mehta as well. GJEPC has shifted its exhibition wing to the much-awaited Bharat Diamond Bourse (BDB) building at Bandra-Kurla Complex in Mumbai and will be moving its offices there very soon as well. The official inauguration of BDB is expected in early 2009.
One thing that India should be proud of is the fact that one of the most expensive and largest rough diamonds from South Africa has been sent to India for polishing. The 128.47-carat rough diamond worth $12.13 million is expected to turn into 50 carats of pure glitter, according to Kishore Virani, the chairman of Surat-based KARP Impex, which bought the diamond at auction.
The Marketplace• The Indian trading market is severely affected by the very strong dollar, which touched a six-year high in October. The prices of polished goods have softened and demand is also relatively weak, especially considering that the festive season of Diwali is underway. The ripple effects of the financial meltdown are finding their way into India and seeping into every industry, including diamonds. The severe liquidity crunch and fear of selling goods on credit are further reducing transactions.
• The upcoming wedding season holds no great expectations. It is evident that sales are based strictly on event and wedding occasions, rather than an indulgence in luxury items, which had been the trend for the middle class and rich segments of Indian society.
• Old gold is being sold in large volume by families looking to obtain easy cash.
Article from the Rapaport Magazine - November 2008. To subscribe click here.