As US buyers check for source, Surat diamond industry changes sales plan

Polishing units shift focus to domestic business as American clients shun Russian stones and company partly owned by the Kremlin comes under sanctions.

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To prevent complications with US buyers, the Surat industry plans to use Russian rough diamonds for the domestic market while focusing on rough diamonds sourced from other regions to polish for the US market.
Vinay Umarji Ahmedabad
3 min read Last Updated : May 26 2022 | 8:04 PM IST
Surat’s diamond polishing and exporting units are turning to domestic sales after struggling to prove to their US buyers that the precious stones are not sourced from Russia, which is under Western economic sanctions,

Alrosa, which is partly owned by the Russian government, accounts for 40 per cent of the world's rough diamond supply in volume and 30 per cent in value, was sanctioned by the US Treasury in April 2022.

To prevent complications with US buyers, the Surat industry plans to use Russian rough diamonds for the domestic market while focusing on rough diamonds sourced from other regions to polish for the US market.

"While buyers in the US are asking us to show proof in our invoices whether the finished diamonds have been polished from roughs sourced from Russia or not, we have currently no such system or processes to follow such traceability. Hence, we are resorting to using of Russian rough diamonds, of which the industry is in any way in shortage, for the domestic market," said Kirti Shah who runs a polishing unit in Surat.

According to Shah, what makes such traceability difficult is that largely rough diamonds from different mines and suppliers, be it Russian, African or Australian look and feel more or less the same. "Only rough diamonds from Zimbabwe carry a slightly green shade which is its distinct identity. But once polished, it is hard for anyone to gauge where the rough diamond has come from," said Shah.

Bakul Gajera, of Surat-based Laxmi Diamond, said most units in the cluster are small and medium.

"Most of the units do not have the wherewithal to install such processes. Also, historically the industry has never followed such practice of tracing the source since the small and medium units keep buying rough diamonds from multiple traders and importers and it is hard to keep up," said Gajera.

Moreover, currently 70-75 per cent of units are almost shut due to the annual vacation period of May wherein the industry has sent over 25 per cent of workers on leave. However, the Surat diamond industry could now be staring at massive job losses if the Russian rough imports stuck due to US sanctions doesn't fall through.

Known for polishing nine out of ten diamonds in the world, Surat houses roughly 6,000 diamond polishing units that employ nearly one million workers and clock up an annual turnover of $21-24 billion or Rs 1.6-1.7 trillion.

The industry has so far sent over 250,000 workers on 15 days leave till June even as production has taken a hit due to lack of rough diamonds.

While the Indian diamond industry, which is highly dependent on Alrosa's rough diamonds, was hoping for the sanctions to end, the same has continued forcing diamond polishers and exporters to cut production due to lack of raw materials.

According to Shah, the real impact of the US sanction on Alrosa will be seen in June when production has to resume after summer vacation and rough diamonds will continue to remain in shortage.

The Gems and Jewellery Export Promotion Council (GJEPC) has requested the union government, especially to the Commerce Ministry, to intervene in easing of sanctions.

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