US slump hits diamond trade

The diamond jewellery sector is passing through a rough patch, with a pile-up of inventories after a fall in sales in the US market as a result of the economic slowdown.

The inventories of low- and medium-end jewellery segments are on the rise. However, the high-end jewellery sector has escaped the problem as it mainly operates on a made-to-order basis.

The total inventories are estimated at Rs 28,000 crore as against Rs 25,000 crore during the same time last year.

"Let us accept that the industry is not faring well today because of high inventories as a dull demand from the both domestic and overseas markets has hampered the industry at large, said Sanjay Kothari, chairman, Gem & Jewellery Export Promotion Council, on the sidelines of the official launch of India International Jewellery Show 2007 in Mumbai on Thursday. The jewellery show, which expects about 25,000 visitors and 740 exhibitors from across the globe, will be held between August 30 and September 2.

Siddharth Kedia of Suashish Diamonds attributed the inventory pile-up to four major factors: rupee appreciation; disconnect in rough and polished diamonds, with rough diamond prices mounting and those of polished diamond remaining stagnant; slowdown in demand across the globe and cancellation of the Generalised System of Preferences (GSP).

The GSP, which was withdrawn on June 30 by the US government, used to provide a fillip to the Indian diamond jewellery sales in the US, where the Indian jewellery exports were competing with those of Bangladesh, China, Turkey and other countries. India used to avail of a 6 per cent import duty rebate on jewellery and was treated at par with developing countries such as Bangladesh.

The demand in the US has slowed down because of an overall economic slump, where independent retailers are cautious to pump in fresh money as confidently as they were doing a year before.

The Rs 70,000-crore diamond exports sector generally keeps inventories for 3 to 4 months. But this year, the inventories have stocked up as domestic players are unwilling to sell at lower prices.

Explaining the situation, an exporter from Surat, the country's diamond jewellery hub, said the price of rough diamonds had appreciated at least by 15 per cent, while those of cut and polished diamonds had risen by a mere 1-2 per cent. Traders were not making any profit despite selling at a greater pace today than a year before, he added.

However, he added that sourcing of rough stones from Diamond Trading Company (DTC) had been slightly economical compared to importing them from BHP Billiton, Rio Tinto and other Russian and Angolan companies.