Surat, the cutting and polishing centre of India, is showing signs of revival as prices of polished diamonds recovered in January. The upbeat sentiment continued to the Signature IIJS in February, which again gave the industry confidence after a rather bad 2015, when it was badly hit. The recovery of polished diamond prices due to improved market conditions in the new year gave the much needed hope to diamantaires. After facing a sharp decline in 2015, the new year ushered in a positive note, helping the industry to look forward for the oncoming Signature Show, which did not disappoint as well.
Surat diamond manufacturers understandably went slow producing under capacity, as they were holding full inventories. By operating almost half their production capacity, they were able to clear their inventories to a great extent. Also, business sense encouraged them to control rough buyings without any production planning. They bought only what they required, which was not the case earlier when traders would buy rough to hoard and sell when demand increased for a higher price. This landed many of the traders in the soup, as they were left holding rough procured at high prices with no buyers around. When De Beers and Rio Tinto decreased rough prices, these traders had to suffer losses and sell as they were in a bad financial crunch and liquidity problems. But again, a number of units that were closed down in the recent past in the cutting centres are still in doldrums. Many have no financial help to procure rough and get back into production, as banks are not very forthcoming when financing SMEs is concerned. Banks, on the other hand, may be right in their own way, as they had to contend with many non-performing assets in the past and even defaulters from large companies.
Understandably, the manufacturers were confident that the polished goods in inventories would eventually get sold as Surat is the world's largest diamond cutting and polishing centre producing small size diamonds below 50 cents. So, invariably the diamantaires will get a price benefit on their unsold inventories. At that time, Regional Chairman, Gems and Jewellery Export Promotion Council (GJEPC), Dinesh Navadia said, "The increase in polished diamond prices indicates positive industry sentiments. The consumer demand is likely to increase in the coming months. Though still there is a need by the diamond mining companies to reduce rough diamond prices by almost 15-20%."
According to market sources, due to shortages of polished diamonds, the market sentiment improved supporting prices. Signature Show, which is the jewellery booking time for overseas buyers, as well as retailers in India, saw an appropriate positive response. Loose polished diamonds, too, found buyers who were stocking up for their respective festivals and wedding seasons. The Chinese slowdown and subdued demand have, however, been a dampener. Still, India’s domestic loose stone and jewellery market has been a sustenance for the survival of the diamond industry.
After facing a drastic decline in 2015, polished prices in India slowly recovered, bringing back good cheer to the Indian market. Inventories of polished diamonds are presently lower than normal in the Indian market. Recently, there was recorded a price increase for the first time. The concluded Signature IIGS 2016 indicated the polished market was picking up after polished diamond prices witnessed a continuous decline last year.
In fact, sometime during mid-November and the beginning of December, polished prices began to show signs of firming up, giving an impression of impending goods days. The market showed signs of stabilizing and price corrections taking effect, a trend that happens when a balance has arrived across the diamond pipe line. Shortage of goods was most likely the reason and trading was rather aggressive, as production in the cutting centres had slowed down drastically during that time. But are we celebrating too early, given that the past has taught lessons of going cautious, as rough supply is not under control anymore? Shortages of select categories and festival seasons help to underpin polished diamond prices, but problems persist as manufacturing is still not as profitable as in earlier times taking into account the current rough price levels. Two months ago, it was reported that the diamond distribution chain was overstocked, though some varieties were out of stock and shortages were reported in the market.
The Indian diamond market has witnessed certain categories of polished diamond prices increase 4-5 per cent in the past two months, due to shortage of goods. This may have brought cheer to the Indian diamond manufacturing sector, which has been badly hit for a long time now.
During financial crunch periods, large factories survived due to their sheer fundamental strength, but it is the small and medium polishing and cutting units that are badly hit, leading many to cut production to a minimum, while others could not survive and had to shut down their units completely. A number of workers lost their jobs, as companies went through a retrenching period. A report also said that ‘more than 5,000 Surat polishers had lost their jobs since June 2015, due to Chinese consumers reducing luxury purchases, leaving India jewelers with stocks of unsold jewellery and gems’.
Indian manufacturers refused to buy rough at high prices as polished prices were stagnant. For the first time, the import of rough diamonds showed huge decline - around 26% during Apl-Sep. 2015, in comparison to the same period in the previous year. However, the Oct. 2015 figures showed an increase to $ 1072.73 million as against $ 935 million in Oct. 2014, registering an increase of 14.61 percent - an indication that the diamond manufacturing sector was slowly going back on track. However, Dinesh Navadiya in an interview with ANI said that business was slowly picking up in Surat. He also noted that the return of workers has given a boost to the industry; and that the difference between the production cost and sales price of polished has stabilized; and manufacturers are beginning to see profits again. Attributing this to the steps taken by the diamond industry in India by controlling rough imports and production, Dinesh Navadiya pointed out that global demand was improving and the domestic market was also doing well.
The domestic market in India has become the third largest diamond jewellery consumer in the world only after the United States and China in the $80-billion global market. In terms of demand for polished diamonds, India is the third largest market, accounting for 8% of the global diamond jewellery sales, where US accounts for 42% and China, including Hong Kong and Macau account for 16 per cent. As De Beers reduced rough diamond prices by an estimated 7-10%, prospects for increasing the money-earning ability of manufacturers are evident. Demand for rough diamonds has also increased, as manufacturers began to raise production of polished diamonds to fill the gaps in supply.
Exports of polished goods from India are expected to increase in the coming months with demand from the US market going stronger. Also, the Chinese market has reported strong sentiments after the New Year’s holiday, including the Far East, which is gradually showing a renewed interest in diamonds as well. The bigger picture shows that 2016 will be a comparatively better year for Indian diamond companies. Manufacturers are ramping up production and diamond traders expect to see a large amount of polished goods coming into the market. However, analysts say this might affect the retail demand for polished goods in India.
Aruna Gaitonde, Editor-in-Chief of Asian Bureau, Rough & Polished
