Business Standard

Slowdown likely for diamond processors

Global rough diamond miner De Beers forecasts a slowdown in sales, Indian companies toface the heat

Dilip Kumar Jha Mumbai
The second half of the calendar year (July-December) is likely to remain challenging for the diamond processing sector in India. The sector witnessed robust growth in the first half.

London-based De Beers, one of the world's largest rough diamond miners, constituting 30 per cent of the global supply, posted 12 per cent growth in the first half of the current calendar year at 16.046 million carats compared to 14.295 million carats in the corresponding period last year.

Higher production was supported by increased sales from major cutting and polishing centres, including India, Hong Kong and Belgium. "The seasonal nature of diamond consumption means that De Beers' annual performance is generally more heavily weighted towards the first six months, reflecting normal restocking by midstream diamantaires after the key selling season - between Thanksgiving and the Chinese New Year. While stocking levels increase as the end of the year approaches, this is offset by manufacturing slowdowns that typically impact rough demand in the second half. It is expected that the trend will continue this year," said Mark Cutifani, chief executive of Anglo American, which owns De Beers.
 
The demand for rough diamond was robust in the first half, reflecting a positive outlook for polished diamonds in key markets of the United States, China and India. This contrasted with the first half of 2013, when encouraging growth in the United States was not matched in India (where demand was weak).

Stronger year-on-year consumer demand resulted in higher levels of retailer restocking during the first half of 2014 than in the same period last year. Increased production in rough diamonds is reflected in jewellery exports.

Data compiled by the apex trade body the Gems and Jewellery Export Promotion Council (GJEPC) showed India's exports at $8417.98 million in the first half of the current calendar year, a marginal rise from $8367.49 million in the corresponding period last year. In the rupee term, however, jewellery exports reported a decline of around three per cent due to appreciation in the Indian currency at Rs 104,240.23 crore for the first half of the current calendar year compared with Rs 107,372.95 crore in the comparable period last year.

The jewellery exports prevented a steep fall despite adverse global economic scenario. Going by historical performance, India's gems and jewellery exports in the second half of 2013 reported at Rs 95852.84 crore.

"Jewellery demand from the US is robust on a recovery in the country's economy. The fluctuating signals from other economies, however, have sent an uncertain signal for the second half of the calendar year. Anyway, diamond processors are facing huge squeeze in their operating margins due to a massive spurt in rough and stagnant polished diamond prices, which poses a challenging environment for Indian players," said Vipul Shah, chairman of GJEPC.

The supply side is not going to be an issue for the sector. But, there will a natural slowdown in business due to squeezing profit margins in the second half, as exporters have not been able to pass on the raw material price hike to consumers amid fear of loss in orders, Shah added. Rough diamond price has risen by around 10 per cent during January -June period compared to two-three per cent increase in polished diamond price.

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First Published: Jul 28 2014 | 10:34 PM IST

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