Diamond Jewellery Exports to surge

DiamondWatchDe Beers hope the surge will be driven by two largest consumers – US and China.

India’s diamond jewellery export is likely to surge in the coming months due to positive sign of revival in the economies of America and China, which together constitute two-thirds of global jewellery consumption.

Gems and jewellery export fell 8.7 per cent during the first nine months of the current financial year to $25,076 million (Rs 150,257 crore) from $27,465 mn (Rs 149,955 crore) in the corresponding period last year.

Indian diamond jewellery markets performance in 2013

The diamond jewellery consumers have been a big disappointment in 2013. According to the annual report by Anglo American owner of De Beers, the Indian diamond jewellery market has not performed up to its mark in 2013, while the US and China have continued to show positive growth with strong holiday season sales.

Anglo American stated that despite global macro-economic uncertainty, diamond jewellery sales increased in local currency terms in all major diamond markets, except India. In India, challenging economic conditions and devaluation of the rupee have resulted in decline of over 30 per cent in demand, industry leaders said.

The Indian diamond jewellery market is pegged at $8.5 billion with the year-over-year increase of around 15-20 per cent. De Beers CEO Philippe Mellier had told Reuters in an interview that De Beers could boost its market share to 40 per cent in a few years, but India is the big drag on its growth for now.

Global demand for gems and jewellery has been lukewarm since August last year and the trend continued until December 2013. This was when Winsome Diamond was declared a defaulter with around Rs 6,000 crore of unpaid loans. Banks looked at the sector with doubts, deferred lending and pressed for recovery of loans, resulting in huge squeeze of working capital for diamond processors. Inventories went to 90 days of consumption, against the 30-day normal.

Expect better performance in 2014

StatisticsDe Beers, world’s biggest diamond mining company expects a slight strengthening in growth in diamond jewellery demand in 2014, driven by continued gradual improvements in the global economic outlook.

“We expect a slight strengthening in growth in diamond jewellery demand in 2014, driven by continued gradual improvements in the global economic outlook. The US and China are expected to continue to be the main engines of growth for polished diamonds. Most other markets are expected to show positive growth in local currency, with final dollar-denominated results being partly dependent on currency fluctuations,” said Mark Cutifani, Chief Executive of Anglo American, the parent company of De Beers, while presenting financial results of the company on Friday.

Diamond manufacturers in India face continued pressures regarding levels of bank financing. In India, further volatility of the rupee may potentially affect rough diamond sales. A senior office-bearer of Gems and Jewellery Export Promotion Council (GJEPC) said, “There were number of factors that affected the diamond jewellery sales in the country as well as the diamond manufacturing in 2013. Rupee volatility, increase in rough diamond prices, gold price volatility and decreased consumer confidence. But, 2014 looks promising with increased optimism of diamond jewellery sales.”

Vipul Shah, Chairman of the Gems and Jewellery Export Promotion Council says, “Things have changed significantly and banks have started looking at diamond processing with a positive outlook. In fact, a couple of banks have started calling upon companies with a fair record for lending. Hence, working capital is no long an issue.”

De Beers, the world’s premier source for rough diamonds, has painted an attractive picture for jewellery demand, especially from the US and China. De Beers posted a 12 per cent increase in rough diamond production to 31.2 million carats in 2013, as compared to 27.9 million carats in the previous year.

The US market showed positive growth in the fourth quarter. China continued to show positive growth rates but at levels consistent with slower economic development. In the medium to long term, industry fundamentals are expected to strengthen as diamond production plateaus and demand continues to increase, Cutifani added.

In India, however, both rough and polished diamond prices have risen by three to five per cent since January, due to the lack of pipeline inventory supplies.

According to Shah, liquidity in the diamond jewellery sector has come back to normal after four or five months of squeeze. “We hope for a better year ahead,” he added.

The most uncertain factor was high volatility in the rupee against the dollar. Fortunately, this volatility has since stabilized, helping exporters to formulate a long-term strategy.

The overall sentiment is positive and dealers are optimistic about their prospects in the first quarter. Manufacturers’ profit margins have improved as they’re selling polished diamonds, which was manufactured from rough bought a few months ago at relatively low prices, at slightly higher prices. Rough trading is stable with local manufacturers aggressively looking for goods as there is concern that liquidity will tighten around the second quarter, as the major banks are expected to reduce their lending for rough purchases.