Weak rouble, low oil prices soften diamond demand; exporters face a rough patch

India’s diamond exports are expected to remain flat at best this fiscal year as a weak rouble and low oil prices softened demand from the key markets of Russia and the Middle East.

 The executives of the industry don’t expect the situation to improve before June. The shortage in diamond industry will continue further. “The sentiment is not yet positive,” Vipul Shah, Chairman of the Gem & Jewellery Export Promotion Council, told ET. “Even demand for diamond in the recently-concluded Hong Kong International Jewellery Show was lacking lustre, which is an indication that international markets are not ready to buy good volumes of diamond.”

Between April 2014 and January 2015 – the first ten months of the current fiscal – exports of cut-and-polished diamonds dropped by 4.52 per cent from a year ago, to 286.76 lakh carats. This trend isn’t going to change drastically in February and March. “Exports are likely to remain flat,” said Shah. Amid this, polished diamond prices remained under pressure in February .

Diamond trade in India is facing a liquidity crisis as well. Buyers are lacking confidence to make large inventory purchases, making cautious purchases, said the executives. Geopolitical tension added to the uncertainty in global markets. “Demand from Russia and the Middle East has slumped,” said Mavjibhai Patel, director of Kiran Gems, a leading diamond exporter. Chinese demand for large diamonds has weakened as Beijing launched a campaign against corruption and conspicuous consumption. “Demand from the US market is there, however.It is showing stable demand,” he said.”Sales overall is down by 5 per cent-10 per cent.”

Industry executives said jewellery sales during the Chinese New Year were mixed with soft demand for high-end products and steady sales of commercial-quality diamond jewellery .”Chow Tai Fook, a diamond retail giant in China, reported that its retail revenue grew 9 per cent year-on-year during the Chinese New Year holiday spurred by strong sales of gem-set jewellery in Mainland China,” Patel added.

According to Rapaport diamond report, the jewellery industry standard for the pricing of diamonds and trading in rough diamonds improved slightly, but overall the demand is cautious as manufacturers struggle to profit. Manufacturers reduced polished production by about 30 per cent in volume and 50 per cent in value, tightening the supply of laboratory-graded diamonds, the report added.

Traders hope shortages will stabilize the market in the months to come. India has imported fewer rough diamonds in the first 10 months of the current fiscal. The country imported 1,228.15 lakh carats of rough diamonds compared with 1,381.67 lakh carats in the corresponding period of the previous year. Patel said demand will not spike in the March-May period. “We can see recovery from June.”

Courtesy: Economic Times