Diamond Jewelry Demand in India May Slow After Gem Prices Surge

Demand for diamond jewelry in India, the world’s biggest exporter of the polished precious stones, may slow as a surge in prices discourages buyers and spurs consumers to favor gold, according to Titan Industries Ltd. (TTAN)

Polished diamond prices, which jumped about 60 percent to 70 percent in the last six months, may gain further in the next few months, said Sandeep Kulhalli, vice president, retail and marketing at Tanishq, the jewelry retail chain owned by Titan. The company is India’s biggest retailer of gold jewelry.

“Because of the sheer price-value equation being so unfriendly to the consumer, there are people now moving back to gold, which is where the dangerous trends are,” he said by phone from Bangalore. “There will be an impact on growth rates of diamond sales.”

Prices for polished diamonds are gaining as rough, or uncut gems, rally as producers struggle to increase capacity idled during the global financial crisis that began in 2008 and as consumption in Asian nations expands. De Beers, the world’s largest producer, said last week first-half sales rose to a record as demand from the U.S., China and India drove prices.

Rough diamonds advanced more than 49 percent in the first half, adding to two straight annual gains of more than 30 percent, according to calculations by WWW International Diamond Consultants Ltd. Polished prices have had their “strongest growth” over a six-month period in the last 30 years, De Beers’ Chief Commercial Officer Bruce Cleaver said on July 26.
Outlook Concern

Titan, also India’s biggest maker of watches, reported on July 28 first-quarter profit jumped 76 percent to 1.43 billion rupees, from 812.8 million rupees a year ago, driven by jewelry. It said that day it was concerned about the outlook for coming quarters because of higher gold and diamond prices.

Diamond jewelry is competing with gold in India, the world’s largest bullion consumer. Demand for the gem rose 31 percent last year, De Beers has said. Spot gold has advanced 17 percent this year and reached a record $1,662.85 an ounce today.

“People don’t find the price-value equation in diamonds anymore and they want to go back to gold,” Kulhalli said July 29. “Gold is far closer to the psyche, ethos and culture of Indians than diamonds.”

Higher diamond prices may spur jewelers to use fewer carats and use other gemstones in jewelry along with diamonds, and make products unaffordable for some customers, Rajiv Mehta, chief executive officer of diamond manufacturer Dimexon Diamonds Ltd., said in an interview in Mumbai yesterday. Still, he sees demand in India increasing at double digit growth rates for a decade.

“Diamonds, as any other luxury product, must be aspirational, it must be something that people need to be seen as a high-end luxury product,” Mehta said.