A few years ago, 58 leading diamond and jewellery manufacturers and exporters of India came together to form Diamond India Ltd. At that time, the collapse of the single channel marketing system, whereby De Beers’ Diamond Trading Company share of distribution of rough diamonds fell drastically, meant that there were many companies and countries which took to marketing their rough directly to the market. The gigantic Indian diamond processing industry always hungry for rough felt it became necessary to make direct contact with producers. The main and primary objective of DIL therefore, at the time of formation, and which still remains, was the direct sourcing of rough diamonds from mining companies and selling it directly to the manufacturers in India.
"DIL is the corporate arm of the Indian diamond industry", is the way the body describes itself – “The bridge between miners and Indian manufacturers”. DIL is approved and promoted by government of India for joint venture with leading overseas diamond and colour stone mining companies. One of the first of these was a joint venture with a Thai company for marketing Thai rubies and other coloured gem stones in India.
Now, in a response to the needs of the industry, and as a reflection of the current phase of the industry, DIL will shortly foray into the gold bullion business.
Praveen Shankar Pandya, Chairman DIL, in conversation with Diamond World:
How would you define the situation vis-à-vis the availability of rough ?
Post recession there are two aspects to production. During the recession there was a sudden decline in recession and consequently prices of rough fell by over 30%. Demand for polished had evaporated due to which overall demand for rough dropped, there was the lack of liquidity, the closure of factories across the world, and particularly in India. This cycle forced miners to reduce the production or hold production. Then, as the market started picking up, and once the polished pipeline cleared out, suddenly there was a shortage of polished. Factories began opening up, there were no extra goods, and the reopened factories tried to run in full steam. The miners suddenly started realizing higher prices.
Rough prices have been a matter of concern within the industry. What is your perception about how they will move in the near future and the impact on the industry?
In 2009, post mid-2009, the whole situation began to change. The miners realised they were able to get higher prices, but they were not sure whether it was V or W recovery and if there would be a downturn again. Everyone was very cautious: the manufacturers in India didn’t want to go back to the same situation neither did the miners didn’t want to go back to selling below cost. It was in their interest to curb production in both ways – from the price realization point of view, as well as to keep production costs down.
Is the manufacturing in India back to normalcy? What was the overall impact on diamond manufacturers?
The manufacturing in India shrank to about 50%. It is back to about 80 per cent - we are short by roughly 20 per cent of our production capacity. Workers who went out of the industry have not all come back. All annual targets are 70-80 per cent of peak production. cycle.
In the earlier situation, all first customers, direct clients of miners like DTC sightholders etc benefited in this period; many other manufacturers also benefited. As rough prices firmed up benefit went to the to the miners, and manufacturers found their margins under pressure. The prices were rising continuously, as tendered prices became the benchmark. Now, there is a correction taking place. Also, there is a fear in the market that whenever Zimbabwe goods hit the market again, the shortage will be offset with a supply from Marange. However, the fear that people have of a major correction may be unfounded as that might not happen.
It is essential that Zimbabwe is brought into the mainstream so that the goods from Marange come to the market in a very transparent and responsible manner and not hurt the mainstream business. The KPCS needs to work quickly in establishing the parameters and then allowing Zimbabwe to resume its quantifiable production into the world markets.
Apart from Marange, would you say that the current rough supply is pretty stable?
There are no new productions which are likely to come in the next two years. The post- recession demand has been firmly robust for polished diamonds so it would not be difficult for the entire industry to work profitably from mining to retailing.
How far has DIL achieved its goals? How would you rate its performance so far?
The rough supply to India was a concern for decades. When DTC controlled one single India and DTC worked closely. It helped India develop a large and robust processing industry. When the single channel became multi-channel, those producing companies or countries that had a credible marketing system and information network were able to reach customers. But a lot of countries did not have this and were then dependent on others and found it difficult to market their products efficiently. These goods started comint to India via other centres, and in many cases, passing through two or three hands before reaching our factories here. It is difficult for a manufacturer to purchase rough which has gone through two-three layers, and process it competitively and make a profit. For the sustainability of Indian diamond manufacturers and processors it became imperative to go directly to the mining countries, to establish a link so that both miners and manufacturers were equally benefited. Then again, it was not possible for smaller manufacturers to go all round the world searching for diamonds. Thus, the need was felt for an industry corporation to source rough directly from wherever it was available, so that the Indian industry could remain healthy and competitive. And the business could continue in the entire pipeline with honest profit for all stakeholders.
It is important to point out that we have the full support from the Government of India, and this has helped us greatly along the way.
In the last almost four years of our existence we initiated many contacts. We have a three-year agreement with Namibia and we are working closely with other African countries as well. We are the single largest outside customer of the Russian production.
Are there any other plans on the anvil for DIL, or will you only focus on the rough side?
While rough will be a major focus, we have exciting new plans to go into gold. Jewellery is becoming an important and as a service to the gems and jewellery industry we have decided to get into this area. We already have the necessary permissions to import and sell gold as one of the agencies, which we will commence doing shortly.
In this area there are plans to work at three levels: first two will be focused on jewellers, and the third to consumers. Where jewelers are concerned, there will be two services we offer: sale of gold bars, bullion; and metal loans which essentially means advancing gold to the jeweler for which he can pay within the stipulated period at a stipulated rate of interest. These will be available both to domestic jewelers as well as exporters. The third aspect of this division will be to sell DIL branded gold coins though appointed distributors, to retail mass consumers.
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