Domestic, overseas sales decline, sparking fears of a re-run of 2008 slump.
The Indian diamond jewellery industry is facing a tough time, portending return of the 2009 slowdown. There has been a 10-15 per cent decline in the overall Diwali jewellery sales, coupled with a drop of nearly a fifth in orders from the US for Christmas and New Year.
Anticipating a slowing in sales, the Diamond Trading Company (DTC), the marketing arm of the world’s premier supplier of diamonds, De Beers, has asked its sightholders (authorised buyers of rough diamonds) to temporarily postpone purchases, resuming only when they need these for manufacturing and have the financing in place to pay for it.
“In the last quarter of 2011, the global demand for rough diamonds will run at about $1.2 billion, less than the $4.6 billion sold in each of the first three quarters,” said Moti Ganz, president of the International Diamond Manufacturers Association and the Israel Diamond Manufacturers Association.
DTC, which supplies nearly 40 per cent of the world’s total rough availability, has decided to limit the next sight allocation to $300 million; the previous lot was $440 million. Most of the diamonds mined across the world are processed in India. Hence, the lower production and sales of roughs will result in reduced cutting and polishing work in India.
According to Sanjay Kothari, vice-chairman of the Gems & Jewellery Export Promotion Council, “Retail jewellery sales started declining in August with the downgrading of US debt by Standard & Poor’s, as individual consumers preferred to keep cash in hand and deferred fresh purchases.”
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Since the prices of gold and diamonds escalated hugely, consumers gradually postponed investment in jewellery. Jewellery orders to Indian processors are estimated to have declined by 15-20 per cent in volume terms, despite a possible 10 per cent upsurge in value.
Generally, Indian diamond processors book over a third of annual orders from US buyers on the Christmas and the New Year season, which runs up to Mother’s Day in February. This year, overall orders were not encouraging, said Kothari.
During the previous slowdown, which began with the collapse of Lehman Brothers in September 2008 and continued until the end of 2010, the Indian diamond industry lost 40 per cent of its 400,000 skilled work force to other industries.
“We are closely monitoring how the Christmas and New Year demand is unfolding in the US market and the wedding season demand in India,” said Pravin Nanavati, joint secretary of Gujarat Heera Bourse. The overall situation is certainly not favourable, he added.
According to Praveen Shankar Pandya, chairman, Diamond India Ltd, recovery has begun in Israel and would soon percolate to India. However, he also feels demand recovery is impossible before the April-June quarter next year.
Roughs supply from Zimbabwe to begin soon
In a remarkable decision, the government of Zimbabwe has signed the Kimberley Process (KP), a framework to restrict supply of “blood diamonds” and protect the integrity of rough supplies. As a result, rough diamond supply from the mining operations of Marange Resources, restrained by KP member countries, including India, is likely to commence soon.
“This will not only stabilise the world diamond business by encouraging the traders to keep illicit diamonds out of the system, but will also help millions of people of Zimbabwe to derive the fruit of their diamond wealth and create strong bonds with workers on ground in India who earn their living from cutting and polishing of diamonds,” said Rajiv Jain, chairman, Gems and Jewellery Export Promotion Council.