The mood of the Indian diamond industry and trade on the eve of the ensuing Christmas season has been noticeably better than that a year ago, when prices of rough as well as polished stones were spiraling down, in the wake of financial crisis that hit the USA and several other economies following the collapse of Lehman Brothers on September 15, 2008.

Improvement Since Q2 2009 :
Many manufacturing units in the country were obliged in view of the drop in demand, either to roll down their shutters or slash their production. Things, however, started showing some signs of improvement since April 2009. By then, most manufacturers were able to clear or substantially bring down their inventories. Many of them, therefore, wanted to step up production again. However, there was shortage of rough in view of reduction in supplies by major producers. This improvement in demand for rough enabled suppliers to put up their prices. Despite this a number of units went on with their efforts to step up polished production. Thus the industry which had come to a virtual halt at the beginning of the year 2009 was able to operate around 50 per cent of its capacity on the eve of the Christmas season.

Mixed Reports from USA :
Meanwhile, the news, particularly from the USA the largest single consumer of diamond jewellery in the world remained mixed. In the July-September 2009 quarter, the US economy showed a growth of 0.9 per cent, indicating an annual growth rate of 3-6 per cent. Also, the rate of monthly job losses came down to 1,90,000 in October 2009. Various asset markets were in good shape and were able to spread “feel-good” psychology. However, sale of new houses declined in September and house-prices remained depressed. Despite the reduced rate in the decline of jobs in October 2009, overall unemployment rate in the USA had gone as high 10.2 per cent. Besides, the consumer Confidence Index which showed some improvement in September 2009, declined again in the subsequent month.

Fingers Remain Crossed :
This makes many people in the diamond trade and industry to keep their fingers crossed about the performance of the US market in the forthcoming Christmas season.

Pre-Christmas Orders :
According to export circles, pre-Christmas orders have started coming in from the USA since October. However, overall business is about 25 per cent lower than normal. Manufacturers are comfortable in view of the reduced burden of inventories and some improvement in realizations. Shipments to Japan are down, however despatches to Hong Kong are better.

Shortage of Rough :
Shortage of rough is continuing. Besides the producers of rough keep stepping up their prices intermittently. In the open market rough diamonds are commanding premium ranging from 5 to 10 per cent. Prices of polished gems have improved but in several cases they are still lower than the peak levels touched by them last year.

Money Position Tight :
Money position is far from comfortable. This can be seen from the fact that interest rates on loans from private sources remain as high as 18 per cent per annum.

Divergent Views on Christmas Prospects :
Views on business prospects in the USA during the Christmas season remain divided. While some circles hope that there could be some improvement compared with the last season, many others are of the view that the Christmas business in the USA might be flat in view of the prevailing subdued consumer confidence there at present.

Diamond Exports Subdued :
Exports of cut and polished diamonds from India in the first seven months (April to October) of 2008-09 totalled US$ 9404.34 million (Rs. 45365.09 crore), compared with US$ 10154.90 million (Rs. 44209.41 crore) in the same period of the preceding year, indicating a decline of 7.39 per cent in dollar terms, but marginal improvement of 2.61 per cent in rupees, because of comparatively softer rupee.

Lower Rough Imports :
Imports of rough diamonds in the first seven months of 2009-10 have been substantially lower around 745.86 lakh carats, valued at US$ 4536.28 million (Rs. 21893.3 crore), compared with 943. 13 lakh carats valued at US$ 6443.89 million (Rs. 27779.39 crore) in the same period a year ago. Imports of cut and polished diamonds during the period were of the order of US$ 5604.23 million (Rs. 27056.46 crore), compared with US$ 5555.95 million (Rs. 24164.98 crore) in the corresponding period of the earlier year.

Gold Jewellery Marking Time :
Shipments of gold jewellery during the 7-month period under review amounted to US$ 4973.88 million (Rs. 24061.60 crore), compared with US$ 5243.65 million (Rs. 22971.20 crore) in the same period of the earlier year, showing a decline of 5.14 per cent in dollar terms but an improvement of 4.75 per cent in rupees. The decline in volume might be much higher than seen in dollar terms, looking to the sustained rise in gold prices this year.

Bullion Buoyant :
Gold continued to seek new highs, in view of excessive global liquidity, weak US dollar, and rising investment demand strengthened by rising prices and increasing expectations. In the overseas markets, the yellow metal was placed on November 17, 2009 at US$ 1132.15 per oz., while silver was quoted US$ 18.12 per oz. In the domestic market standard gold was placed on the same day at Rs. 17,015 per 10 grammes and silver at Rs. 28,400 per kg. Bullion prices might remain strong, so long as the present easy money policy remained in place.