Apart from big diamond companies defaulting against bank loans, spiralling prices of rough diamonds seem to have taken the sheen off Rs 80,000 crore Surat diamond industry this Diwali. Diamantaires in Surat have seen erosion in their margins due to firm rough diamond prices.
On one hand, the prices of rough diamonds have firmed up by around 20-25 per cent in past three months, on the other polished diamonds prices have stabilised during the same period. At present, all the diamond and cutting polishing units are closed due to Diwali vacation in diamond industry.
"Various types of rough diamonds have seen price escalation in last three months or so. This is hurting us (Surat diamond industry)," says Rohit Mehta, director, Moments Creations and Jewellery India Pvt. Ltd. and immediate past president of Surat Diamond Association (SDA). Agrees CP Vanani, former SDA president, "Polished diamond prices have stabilised, while rough diamond prices have surged. Few months ago, diamantaires used to get 2 to 5 per cent margins on sale of polished diamonds. Now, many are selling these precious stones on cost-to-cost basis". Some diamond traders are selling polished diamonds by making losses.According to diamond industry players, increased stockpiling of rough diamonds led to a sharp rise in their prices.
"With liquidity returning to the market post recession, many diamantaires started cornering stocks of rough diamonds anticipating higher demand. This pushed up the prices of rough diamonds, while polished diamond price did not surge as much as rough diamonds," explains, Dinesh Navadia, president of SDA.After easing of recessionary pressures by the end of 2009, the prices of rough diamonds have surged by 50-60 per cent so far, while polished diamonds cost increased by around 25-30 per cent.
"During the last three months polished diamond prices stablished, while rough continued to grow putting pressure on our margins," Navadia added.However, diamond industry is hopeful that prices of polished would increase during festive season of Christmas. In order to address the issue of rising rough diamond prices, diamond companies in Surat have also formed a new firm for procurement of rough diamonds. The newly formed company has struck a deal to procure rough diamonds worth $ 1.2 billion from Zimbabwe.