Mohit Pungalia breathed a sigh of relief as he returned to Hong Kong in September 2020. He had a laundry list of tasks to complete. Since the pandemic, he’d been stuck in Jaipur, India, where his brother manages their emerald and colored-gem business. Through their sales office in Hong Kong, they service jewelry manufacturers and retailers in China, Hong Kong and the region. Pungalia had a few hundred thousand dollars worth of outstanding payments to collect and pending sales orders to fulfill. With mining operations closed globally, he didn’t know how he would replenish his stock, but that was a problem for the future.
Pungalia’s experience typifies the Indian gemstone industry’s dilemma during the pandemic. By September 2020, China was driving the colored-stone market recovery as the US and Europe struggled to reopen. Emeralds were hot, especially top-grade cabochon and sugarloaf shapes, but supply was running low.
Making of a hub
Jaipur developed into the global hub of emerald manufacturing during the early 1970s, when Indian gem merchant SS Gupta took over the Gravelotte emerald mine in South Africa. The Zambian government then invited him to establish a joint venture. Today, that venture is the Gemfields-operated Kagem mine, the world’s largest emerald deposit.
Gupta needed a low-cost cutting center to process vast quantities of commercial-quality emeralds from his mine. Supply from Gravelotte and Kagem, combined with lower labor costs and generations of cutting and marketing experience, resulted in Jaipur becoming one of the world’s premier gem-processing hubs, with Zambian emeralds as its lifeline.
Before Covid-19, manufacturers and dealers would travel from India to locations such as Brazil, Madagascar, Zambia, Thailand and Tanzania to select and ship rough gems to their processing operations. The pandemic brought that to a halt. From April to September 2020, lockdowns and border closures caused a 54% decline in imports to India, and a 64% drop in exports of cut and polished goods. By September, the trade was looking to China for demand and to Africa for supply.
Green light
Emeralds represent 60% of India’s gemstone-processing segment, and of these, 80% to 90% are Zambian. The first large-scale players to open the rough-supply tap were the privately held Grizzly mine and the publicly listed Gemfields, with their auctions in October and November 2020 respectively. The last quarter of 2020 and the first of 2021 saw a resurgence in demand for emeralds and other gemstones as markets picked up in India, the US and Europe through the holiday and wedding seasons.
In February this year, Grizzly hosted an emerald auction in Dubai, where the company reportedly generated $17 million to $23 million worth of revenue. This was followed by Dubai-based emerald viewings and auctions by Fura from Colombia and the Belmont mine in Brazil. Gemfields opted to take its goods on the road, with viewings in Tel Aviv, Dubai and Jaipur, and bidding via its new online auction platform in April. Some 59 companies placed bids at the auction, generating total revenues of $31.4 million, with a record-breaking average value of $115.59 per carat.
But what about the rest? Some dealers took the medical risk, traveling internationally to source rough goods. Others relied on local sources. Rough-gem dealer Rajat Singh of Madagascar Trading Company says material that would typically take him months to sell in Jaipur was being picked up by manufacturers in days. But like others, he continues to struggle with higher logistics costs, which are eating into his profits.
“Goods I was able to import into Jaipur for $800 are now costing me $1,600. The shrinkage of international air connectivity is driving the price up,” Singh says.
For exporters dealing in high-value stones, the cost of shipping from India to Europe has also increased by 30% to 50%. Despite digitization, most buyers want to examine top-grade gemstones before buying, which used to happen at trade exhibitions. It’s also the industry norm for international buyers to expect goods on consignment. Now, if manufacturers’ gemstones are rejected, the burden of multiple shipments at higher rates, plus stretched liquidity due to lower demand, can erode their wafer-thin margins.
Broken supply chain
From April to June this year, polished-diamond exports from India grew 20% compared with the same period in 2019. However, colored-gemstone exports declined by 29%. Unlike the diamond sector, where 80% of supply is via licensed mining companies and only 20% is from informal suppliers such as artisanal or illegal mines, the colored-gem market has it the other way around.
Since the pandemic has broken the artisanal supply chain, the impact has been significant. As per the industry, small-scale lapidaries employing three to six people have seen an 80% reduction in their work. Medium-level players with 10 to 15 cutters are operating at 30% to 50% of their capacity, and there has been a 20% to 50% reduction in the number of gem dealers in the market. Some have left due to lack of work; others have found more lucrative opportunities elsewhere.
“Dealing in gemstones comes with a lot of uncertainty,” says Abhishek Agarwal, proprietor of Tourmaline Delight. “We have to sometimes ship gems valued at around $50, $100, $200, and/or smaller quantities. Shipping them through a proper channel where we get shipping bills and documentation...is impossible. Clearing charges for goods under $500 are high. If we use general post, we don’t get any bill of entry, and [shipping companies like] FedEx, DHL and UPS are too expensive.”
When he recently used FedEx to import some stones, he recalls, “the assessable value was $150. I gave all the required documents.... FedEx still charged $139 as duty, saying it’s imported in a personal capacity, plus other charges. I couldn’t send the shipment back because the sender would incur the $139 duty and shipping charges. With such expenses, it’s looking tough to cope with the current competitive landscape.”
Corrective measures
Looking ahead, Arun Dhadda — managing director of jewelry manufacturer Gem Plaza — is cautiously optimistic. “We are experiencing huge demand from China and the US for jewelry. Our factory is fully booked. We source our gems locally from manufacturers and merchants in Jaipur, and acquiring rough gems of consistent quality at competitive prices has been challenging. Gem manufacturers are forming bidding consortiums at auctions to mitigate their risk. Increased collaboration is good for the overall health of the industry. On the plus side, we see a shift in jewelry manufacturing contracts from China to India. 2021 is looking positive.”
To bridge the supply gap, the Gem & Jewellery Export Promotion Council (GJEPC) has been working on constructing a special notified zone in Jaipur where miners can bring their rough stones for viewings. Goods brought in would have to be reexported to the source nation pending the conclusion of sales. The council is hoping to have that active by the first quarter of 2022.
Although this will help keep the manufacturing wheels turning with a regular supply of emeralds, rubies and other precious stones from organized players, it still poses a challenge for miners who lack the financial resources to bring their goods to Jaipur and keep up with the administrative work. With gems like rose quartz, amethyst, aquamarine and tourmaline, the cost of shipping back and forth may be more than the price of the material.
India’s gem and jewelry exports for April through June came to $9.18 billion, versus $8.92 billion for the same period of 2019, according to the GJEPC. The main drivers were polished diamonds, studded gold and silver jewelry. It remains to be seen whether India’s gem trade will rally by 2022. For now, the outlook is cautious, yet hopeful.
Article from the Rapaport Magazine - September 2021. To subscribe click here.