The news that a company is being set up in Surat to buy rough diamonds on behalf of Indian manufacturers should sound alarm bells for the rest of the trade, Avi Krawitz believes in his analysis posted by www.diamonds.net.
The local press reported this week that a company called Surat Diamond Sourcing India has been established to source diamonds directly from mining firms across the globe. The consortium consists of about 1,500 small, medium and large diamond manufacturers and has initial capital of approximately $220 million (INR 10 billion) at its disposal. Larger manufacturers and dealers have contributed about $230,000 each to join the group, while smaller companies invested around $115,000.
So far, 200 companies have joined and spokespersons expect that number to grow to 1,500 in the coming weeks. While it is unclear how the goods will be distributed, reports indicate that the new company can sell goods to any company around the world, but registered members will be given preference.
The move will help India’s influence spread even further. The country already controls about 85 percent of the global volumes, and 70 percent of the value, being manufactured. Not only will the new organization potentially help boost those numbers, it could also have a major impact on pricing.
By the nature of its unparalleled market share and size, India is able to adapt more quickly to changes in price and demand. With a central organization setting the bar for this large secondary market, there is a strong likelihood that a “syndicate” mentality may develop.
A number of concerns therefore need to be addressed. These include the structural nature of the new organization, what it will base its buying, selling and pricing policy on and whether it will muscle its way through the tender system to further guarantee rough supply to India — at the expense of other centers and companies.
In addition, while the initial manifesto appears to focus on providing rough to small and medium-sized companies, Diamond Trading Company (DTC) sightholders will be included and appear to be the main source of funding for the group. It is quite plausible to expect that the sightholders will come out on top here again. Technically speaking, the company itself could become a sightholder, which would open up some legal questions regarding their relationship with the DTC. One source close to De Beers told Rapaport News that sightholders are not allowed to “clone” themselves to obtain more rough. The mining giant would therefore have to look closely into the structure of the new company to prevent this result.
The announcement comes at an exciting time of year for the Indian diamond industry and its umbrella representative body, the Gem & Jewellery Export Promotion Council (GJEPC), as the India International Jewellery Show (IIJS) began in Mumbai on Thursday.
The show has come to represent all that is dynamic about the Indian market and is expected to give both the local and global industry the nudge it needs before Diwali and for the rest of the year. It was IIJS and the strength of the local Indian retail market that calmed nerves about the recession during the past two years and this is expected to be the case again in 2010.
The GJEPC also continued to show its innovative edge by launching the India International Jewellery Week (IIJW) this year to precede IIJS and bring Indian design to the international stage. Given the local buzz surrounding the event, it has the capacity to reach the intended international audience and grow in stature in the design world.
As a result, India has all its bases covered in the jewelry industry. The country already has an established cutting and polishing powerhouse, as well as the domestic retail market to sustain it and balance against the slump in global demand, and is now positioning itself to influence trends along the catwalk.
All of these attributes represent tremendous achievements by the country that are synonymous with its remarkable economic growth over the past decade. However, what is good for India may not necessarily be good for other countries and certainly not for the global diamond industry, which has long been wary of India’s growing influence.
The establishment of Surat Diamond Sourcing India only adds fuel to the fire. The rest of the industry must surely be asking itself if India is indeed becoming too big for the industry’s good. Is this the dawn of the new syndicate?
