Diamond Trade Cautious- by M.D. Dewani

The diamond trade remains cautious about business outlook in view of weakness of Indian currency and subdued margins, despite some improvement in dispatches to the overseas markets in June 2013, if one goes by the statistics released in this regard by the Gem & Jewellery Export Promotion Council. Some markets in the Far East have reportedly slowed, while the U.S. market’s recovery has been slow. While the footfall at the recent JCK Las Vegas Show was satisfactory, some of the participants complained that they were unable to get adequate business.

Margins Under Pressure:
Trade circles contend that while producers of rough stones have been trying to step up their prices, manufacturers are finding it difficult to buy rough at high prices and sell polished diamonds at satisfactory margins, as prices remained subdued.

Polished Prices Subdued:
In the secondary market, certain categories of rough are available four to five per cent below their lift prices. Even so, manufacturers find the situation untenable as prices of polished stones have gone down even more. Prices of certain categories of polished stones are said to have gone down by 10 to 15 per cent as the market in the Far East has shrunk to some extent and the recovery of the U.S. market has been far from adequate. Some reports from Shanghai indicate that domestic sales of diamond jewellery in China are now subdued and some leading diamond jewellery companies there have reported a decline in their turnover for the first quarter of 2013. Though the decline, percentage-wise might not be big yet it is bound to affect business sentiment.

Sliding Domestic Business:
The recent slide in the value of Indian currency is meanwhile, adversely affecting jewellery firms doing business particularly in the domestic market. While the cost of raw materials has gone up for them, they are unable to realise corresponding improvement in the prices of articles sold by them. In the case of exporting firms, depreciation of the Indian currency might apparently fetch them better returns in rupee terms. But where exporters have already affected sales on credit terms, some overseas buyers insist on re-negotiation of contracts. In the case of fresh transactions, buyers press for price reductions.

Manufacturing Down:
All this has considerably affected the manufacturing activity of this industry. Several smaller units have reportedly closed down, while bigger ones are said to be operating at reduced capacity. They have again thrown out a number of workers. Some of them have turned to embroidery units or to other fields where there may be possibility to find jobs. Those who are unable to hit upon such new jobs are said to be returning to their villages to work in the farms.

Money Stringency:
The trade has been lately facing another problem as well. After a recent major default by a jewellery firm, several banks are said to been stricter in lending more funds to this sector. Many firms have therefore to turn to borrowings from unorganised sector where the prevailing rate of interest to said to be around 18-24 per cent per annum.

Diamonds Shipments Up:
According to statistics released by the Gem & Jewellery Export Promotion Council, shipments of cut and polished diamonds from the country in June 2013 amounted to US$ 1,478.81 million (Rs. 8,636.24 crore), compared with US$ 1,212.29 million (Rs. 6,792.44 crore) in the same month a year ago. This showed improvement of 21.98 per cent in dollar terms and 27.14 per cent in rupees. However, improvement in shipments in June 2013 over the same month of the earlier year, in terms of volume was just of the order of 7.22 per cent, implying that some exporters might have made certain shipments to their own overseas offices at higher prices.

Gold Jewellery Shipments Down:
Recent measures by the Government of India to restrict imports of gold, as also the slide In Indian currency seem to have badly hit shipments of gold jewellery from the country which fell in June 2013 to US$ 556.81 million (Rs. 3,251.80 crore) from US$ 2,062.32 million (Rs. 11,555.17 crore) in the same month of the earlier year showing a staggering fall of 73 per cent in dollar terms and 71.86 per cent in rupees. The industry may not find it easy to recover the lost ground, unless the Government resolves at an early date the problems faced by this Sector.

Bullion:
Appeal of gold as a haven and inflationhedge has been greatly reduced these days, in view of stronger dollar, rallying stock markets and improving yields on bonds. All this led to rapid outflows from goldbacked exchangetraded funds. Gold demand was also subdued at present in India and China. In the overseas market, gold was quotated on 16 June 2013 around US$ 1,291.8 per ounce, while silver was placed at US$ 19.96 per ounce. In the domestic market, standard gold was quoted at Rs. 26,640 per 10 grammes, while silver was traded at Rs. 41,670 per kg.