Inventories piling up as diamond demand falls

Inventories piling up as diamond demand falls
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First Published: Tue, Nov 04 2008. 09 46 AM IST

Rough patch: A worker measures an uncut diamond in Surat. The industry employs 2.5 million people in Gujarat and Maharashtra. Santosh Verma / Bloomberg
Rough patch: A worker measures an uncut diamond in Surat. The industry employs 2.5 million people in Gujarat and Maharashtra. Santosh Verma / Bloomberg
Updated: Tue, Nov 04 2008. 09 46 AM IST
New Delhi: India’s diamond industry, which closes 35-40% of its annual export deals between September and December, is staring at large inventories due to falling demand in its biggest markets in the US, Europe and Japan.
“We have four months’ stock right now and don’t know what to do with it,” Devasibhai Bhadiyadra of Bhadiyadra Impex Pvt. Ltd said on phone from Surat, Gujarat. His company exports polished diamonds to Hong Kong, Bangkok and Japan. “We usually do not have more than one month’s stock at this time,” Bhadiyadra said.
Rough patch: A worker measures an uncut diamond in Surat. The industry employs 2.5 million people in Gujarat and Maharashtra. Santosh Verma / Bloomberg
Matters have come to such a pass that industry lobby group Gem and Jewellery Export Promotion Council (GJEPC) has written to diamond miners, including De Beers SA, Rio Tinto Group, BHP Billiton Ltd and Alrosa Co. Ltd, to restrict the release of uncut diamonds in the market to offset the current excess supply.
“There is too much goods choking up the pipeline. Prices have crashed by 40% last month,” said Vasant Mehta, chairman of the council, which promotes diamonds, coloured gemstones and jewellery industries in the country. “We’ve asked them (mining companies) to curtail production and supply to the industry,” he said while on a visit to New Delhi.
As many as 10 out of 11 rough diamonds in the world are cut and polished in India. The industry employs 2.5 million people in Gujarat and Maharashtra, the main processing hubs.
Imports of rough diamonds grew 19% between April and September this year at Rs25,109 crore compared with a year ago, according to GJEPC. Although exports have risen by 21.6% at Rs33,519 crore worth of polished diamonds during this period, Mehta says, “The economic scenario is bad. We will be able to get the correct picture about the exports situation in two weeks.”
Companies in the polishing market say the demand for processed diamonds have dropped 10-15% since September, the month when the Christmas orders start picking up and last until early November. Due to low sales, several firms have extended annual breaks to workers this month, from 20 to 30-40 days, Champak Parshottam Vanani, president of Surat Diamond Association, said in a telephone interview.
For instance, Bhadiyadra employs 3,000 people in four units in Gujarat, paying salaries of between Rs5,000 and Rs10,000 a month. Last month, he asked employees to take an extra 15 days’ leave. His company polishes 10,000 carats of diamonds a month. Fifty carats is equivalent to one gram.
The latest move to stall production temporarily will improve prices when the new trading year for the gem opens next week, Vanani maintained.
Mumbai, Surat, Ahmedabad and Bhavnagar are the main trading centres, which closed for the Diwali festival in the end of October.
While rough diamond prices have shot up by 20-25% in the past 12 months, imports have become costlier with every dollar becoming more expensive to make purchases, exporters said. India mostly polishes the mid-range variety of stones that have prices varying between $10 (Rs490) and $200 a carat. Jivrajbhai Darukawala, who handled raw material worth $8 million last year for De Beers alone and employs some 8,000 workers, expected business to halve by next year. “Lifestyle products are always first to be hit first during an economic downturn, and diamonds fall in this category,” he told Mint by phone.
However, Mumbai-headquartered Sanghvi Exports International Pvt. Ltd, the country’s second largest polished diamond exporter at Rs1,100 crore in value terms, was optimistic. “We hope to maintain last year’s position,” managing director Chandrakant R. Sanghvi said by phone from Surat.
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First Published: Tue, Nov 04 2008. 09 46 AM IST