India’s acclaimed and celebrated diamond cutting and polishing (C&P) industry, which has maintained its global dominance over the activity for several decades, has of late been finding the going increasingly difficult.
The industry thrives on importing ‘roughs’ and exporting the C&P diamonds and it is estimated that India processes eight of every ten diamonds sold globally.
However, higher prices of roughs and a poor off-take of finished goods by large diamond-consuming markets squeezed margins. A combination of economic and geopolitical factors globally rendered this export-driven industry unviable and several units are idling and in some cases even face delinquency.
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“China, Europe and the Middle East have seen poor demand for diamonds and Indian exporters to China are facing payment issues,” said Anoop Mehta, President, Bharat Diamond Bourse (BDB). “The U.S. is the biggest consumer of diamonds and is chugging along but without significant increase in demand.”
Further, raw material (rough) prices have increased and there has been no commensurate rise in diamond prices because of poor demand. “Rough prices will have to fall at least by 8-10 per cent to come in line with diamond prices,” Mr. Mehta said, adding that there had to be some de-stocking by the industry.
According to a report by ratings agency, CARE Ratings, “over the past few years, the diamond processing players have witnessed margin pressures on back of increase in rough diamond prices without proportionate increase in polished diamond prices.”
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The signs were evident in 2014-15 when, according to Gem & Jewellery Export Promotion Council (GJEPC) figures, C&P diamond exports fell 5.5 per cent to $23.16 billion. Interestingly, the value of imported roughs rose marginally to $16.74 billion on the anticipated shortage, the volume of imported roughs fell 9 per cent to 1,473.41 lakh carats.
While the April-July period is a slack season for the industry, April-May 2015 saw a 24 per cent decline in rough diamond imports to $2.69 billion while the export of C&P Diamonds fell 10 per cent to $3.37 billion during the period.
Further, CARE Ratings said, “It may be noted that exports still continue to remain weak as buyers are concerned about the growth in the global economy and the impending rate increase by the U.S. Federal Reserve.”
The industry has been hit by delinquencies and lack of finance as banks were anyway wary to lend to the industry. Things came to such a pass that traders were considering a voluntary closure or an embargo on the import of roughs in order to reduce their inventory.
“We have communicated to all parties that they should practice ‘self discipline’ in the import and purchase of roughs and link it to their inventory as also the demand for diamonds,” Vipul Shah, Chairman, GJEPC, said. This is likely to pressure miners globally to cut prices of roughs as India is among the largest buyer of roughs in the world.