RAPAPORT... India’s strong desire and demand for rough diamonds, even in a depressed global economic environment, was clear at the October Mines to Market conference in Mumbai. Representatives from all the major producing companies, including De Beers, ALROSA and Rio Tinto, and countries — Botswana and, most notably, Zimbabwe — shared the conference platform to illustrate the important role India is playing, both as a consumer of rough diamonds and further along the pipeline.
The Gem & Jewellery Export Promotion Council (GJEPC), which hosted the conference, estimates that while India’s polished diamond exports were just $59 million in 1970 and $2.64 billion in 1990, the figure reached $17.54 billion in fiscal 2009-2010. De Beers estimates that India held about 59 percent of the value share of cutting centers in 2008, while Rajiv Jain, the newly appointed chairman of the GJEPC, pronounced that 14 out of 15 diamonds by volume are now cut and polished in India — updating the previous claim of 11 out of 12.
Production Driven
To handle the volume of diamonds processed by India, Surat, the country’s diamond manufacturing hub, maintains a diamond workforce today of more than 800,000 people. Jain stressed that the industry’s responsibility to its workers forces India to be production driven, even if it results in an excess demand for rough that drives up prices. In many cases, the local industry competes with itself to buy rough, for which there are as yet no end consumers.
“When you employ between 800,000 and 1 million workers, who all have many dependents relying on the income of the diamond worker, you cannot make their livelihood depend on the traditional buying seasons or the economic prospects of the consumer markets,” Jain explained.
As a result, most manufacturers who spoke with RDR during a recent visit to Surat agreed that there is a shortage of rough coming into the city. Under pressure to maintain a predetermined worker count to avoid layoffs, manufacturers are also facing competition for rough caused by the cautious ramp-up of mining production by De Beers and other companies, which is expected to continue in the short term. De Beers production is not expected to return to prerecession levels but rather to settle at around 40 million carats a year from 2012 forward.
Securing Supply
Outgoing De Beers Chief Executive Officer (CEO) Gareth Penny stressed that companies need to position themselves to secure stable supply of rough if they want to succeed in the industry during the next decade.
Rio Tinto is expected to launch the Bunder mine, India’s first diamond mine, at Madhya Pradesh in 2014. Jean-Marc Lieberherr, Rio Tinto’s diamond sales and marketing manager, assured that all of the mine’s production will be processed in India. But while the output will have the “quality of Diavik, color of Argyle and sizes of Murowa,” according to Lieberherr, the volumes are not expected to compensate for the long-term supply gap in the market.
Indian manufacturers fully understand that with few, if any, major mines set to come onstream in the near future, they need to aggressively source the available diamonds in the market, with Zimbabwe emerging as central to that strategy.
Marange Pie
Zimbabwe Mines Minister Obert Mpofu assured the conference attendees that Zimbabwe holds the largest diamond find in the world today. “Some have called it a freak of nature and others a wild card,” Mpofu said. “The fact is that Marange will not only transform the Zimbabwe diamond industry, but also the global industry in its entirety.”
Following the conference, Mpofu embarked on a whirlwind tour of Surat, to visit six of the city’s major polishing factories, as thousands of diamond workers lined the streets to greet him (see story on page 96). In a reciprocal visit to Zimbabwe a week later, Surat Rough Diamond Sourcing (India) Limited (SRDSIL), a company set up to source rough for distribution to the local industry by tender, signed an agreement to procure $100 million worth of Marange rough per month in return for training Zimbabwe artisans in diamond design and polishing.
Despite India’s enthusiasm to buy Zimbabwe rough, bankers, including representatives from ABN Amro and the Antwerp Diamond Bank, cautioned the market that they would not finance diamond transactions with Zimbabwe while the country was subject to a U.S. and European Union (EU) trade embargo.
While some of the larger local manufacturers stressed they would not buy Marange goods until the Kimberley Process (KP) issues were cleared up, the potential risk to their reputations from buying Marange goods appeared low on their list of concerns.
Marketing Vacuum
In addition to the shortage of rough, conference attendees expressed concern about the threat posed to their businesses by synthetic and treated diamonds, even if synthetics have not penetrated the natural diamond market over the past five years to the extent that had been expected. They also seem deeply concerned about the lack of a coordinated marketing effort on behalf of the global diamond industry, after the failure of the International Diamond Board (IDB) to launch such an endeavor.
While the rough supply may be waning, expectations remain bullish for consumer demand, as growth in China and India is anticipated to compensate for the stagnated U.S. market.
Penny noted that De Beers estimates that India and China accounted for 13 percent of global polished wholesale purchases in 2009 — a number that is expected to grow to 20 percent in 2016 — versus just 5 percent in 1999. At the same time, the U.S. share has fallen from 45 percent in 1999 to 40 percent a decade later, and is expected to decline to 37 percent in 2016. These trends are reflected in De Beers marketing strategy as it rolls out its Forevermark brand in the Far East and Indian markets.
Still, the U.S. represents a core market for the industry and the lack of progress regarding the IDB proved frustrating to conference attendees in Mumbai, ahead of the Christmas season, as did the underlying message from the leading mining companies that a collective marketing campaign to boost demand was unlikely to occur in the near future.
A Bourse at Last
If the conference highlighted India’s impact on the diamond trade along the pipeline, from mine to market, the country’s potential to grow that influence was showcased at the inauguration of the Bharat Diamond Bourse (BDB) the week after the conference.
It is hoped that the bourse, which was more than 20 years in the making, will provide the necessary infrastructure that was lacking at its previous location in Opera House to elevate India’s status as the number-one diamond manufacturing and trading hub.
“The Ministry of Commerce and the Indian diamond industry over the years have combined their efforts to streamline various initiatives that have today propelled the Indian diamond trade to the next level,” said Anoop Mehta, president of the BDB, at the opening ceremony.
The complex covers a 20-acre plot of land with 1.8 million square feet of office space encompassing 2,500 offices that range in size from 150 square feet to 25,000 square feet. The office space is spread across nine towers of nine floors each, with each tower connected from the second to the sixth floors through a 5,000-foot link.
The bourse trading floor will cover an area of 6,200 square feet, while the customs area is 12,000 square feet in size and the clearing agents area is 6,750 square feet. The complex includes a one-million-square-foot basement parking area, which can accommodate 2,200 cars at any given time.
As the trade slowly moves its operations from Opera House to the new suburban Bandra location over the next year, Jain, and others in the industry leadership, will be looking to use the bourse as a platform to propel further growth.
“The council has made the strategic decision to proactively become the worldwide leader of the diamond industry,” Jain said. With the right infrastructure now in place, and a steady supply of rough, he may well have already achieved his goal.
Article from the Rapaport Magazine - November 2010. To subscribe click here.