India might be seeing the start of a process which would end its reputation as the world’s major processor of rough diamonds.
Till last year, 11 of every 13 rough diamonds mined were processed in
India. However, places with lower cost of production such as Hong Kong,
Taiwan and China have started gaining at the cost of India. Due to lower
taxes and a stable currency, the cost of manufacturing in these centres
is 10-12 per cent lower than here.
have kept rough prices high. At this price, processing of rough
diamonds in India is unviable. Hence, rough diamond processors have
abstained from purchases. Around 30 per cent of what is purchased from De Beers
(the world’s premier supplier of roughs) goes back to the company due
to the exceptionally high price,” said Vipul Shah, chairman of the Gems
& Jewellery Export Promotion Council (GJEPC).
Confirming lower purchase from Indian sightholders (the term for
companies which are their authorised bulk purchasers), a De Beers
spokesperson said, “What we did observe recently is some international
rough dealers increasing their purchases of Indian-type material, as
short-term liquidity pressures saw some Indian-based manufacturers elect
not to purchase all of their allocations at the Sight.”
According to De Beers, currency fluctuations have had a very significant
impact on Indian liquidity. The value of many Indian buyers’ bank lines
has diminished substantially in recent months, simply due to currency
issues. This has been a factor in recent rough diamond trading.
De Beers feels, though, that the price of rough diamonds is not an issue
but liquidity is, owing to the rupee’s massive depreciation, from 54 to
the dollar last year to around 64 now, after a low of 68 last week.
“We price all our rough diamonds in dollars and sell these, directly or
indirectly, to manufacturers who turn these into polished diamonds, many
of which are then sold on the export market, where diamonds are also
priced in dollars. In fact, exporters are if anything at an advantage,
as their manufacturing costs (denominated in rupees) have been deflated
in dollar terms by the rupee’s relative weakness. The question is,
therefore, not the price of roughs, which we believe is correct, so much
as its current affordability in India,” De Beers added.
Meanwhile, GJEPC has urged Al Rosa,
one of the world’s largest diamond mining companies, to cut prices.
Shah says the Russian company has agreed and will cut the roughs’ price
by 10-15 per cent soon. “Indian demand for small-size diamonds has
shrunk due to squeezed disposable income, on high inflation in the food
sector. Therefore, manufacturing activities in India have reduced,” said
Mehul Choksi, managing director of Gitanjali Gems.
The diamond processing industry has reportedly begun laying off workers.
According to Choksi, the Diwali vacation is going to become
exceptionally longer for workers this year.