Thursday, November 8, 2012

Polished Prices, Production Levels Hinge on Diwali Sales

Polished diamond prices and supply levels hinge on how well diamonds sell over Diwali. A good showing could see prices moving upwards by the end of the month and timely production restarts after the vacations. There is guarded optimism as the run-up to Diwali has been fair.

Demand has been ‘routine’ with none of the customary demand increase just before the festival. But diamond prices, the rupee-dollar exchange rate and both domestic and international demand have remained stable for some time now.

The market was literally on the verge of complete panic a few months ago as demand tapered off sharply and polished prices tumbled while rough remained relatively expensive. De Beers subsequently reduced rough prices, the currency exchange rate steadied and domestic demand picked up again.

All will be well if consumers buy enough diamond jewelry to match the current flow through the diamond pipeline.

There have been some indications that Indian consumers are trading up in quality. Domestic demand has picked up for some of the better colors and clarities. Where demand was previously for the VS-and-below clarities, it has now moved upward into VVS territory.

Dealers are acutely aware that current prices are being sustained by a production shortfall. Given that the last two De Beers Sights have been large ones, there is currently no shortage of rough in the market. The current Sight is widely expected to include a large supply of lower color and clarity diamonds. Depending on how big the Sight is, it might significantly increase the rough overhang in the pipeline.

After showing signs of steady growth, Indian traders are not sure the U.S. market will offer much growth, especially in light of the damage from Storm Sandy and the Presidential elections. Thus, the performance of the domestic market over Diwali has become even more crucial for Indian dealers.

Any drop in festival demand will, apart from triggering a price decrease, almost certainly result in factories not reopening promptly after the vacation. Production units have rough diamond inventories purchased at prices that require polished price levels to be sustained in order to be profitable.

A production slowdown will in turn have supply implications for overseas Christmas demand as well as that for the domestic wedding season at the end of the year.

Indian production units and the Mumbai trading market will shut down for the Diwali vacations by November 10. Most serious trading will taper off by November 8. The market is scheduled to resume operations by November 28 but a lot depends on what happens over the festival sales period.
Source: IDEX

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