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The Indian diamond trade is hoping for revival of market sentiment in the coming months, though the overseas demand for polished diamonds remains slack at present
By: Diamond World News Service
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Apr 24 2014 11:49AM
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Reference: 9054  

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Demand Slackening Situation
After an encouraging holiday season, retail sales in the U.S. were quite good during the earlier two months of 2014, but they slackened to some extent thereafter. Likewise, the demand for polished diamonds at Hong Kong also softened soon after the Chinese New Year.

Pressure on Margins
No doubt, diamond-mining companies continued jacking up prices of their rough diamonds, but most of the manufacturers were finding it difficult to pass on such increases to the buyers of polished stones trade when the demand was soft. Manufacturers, by and large, were seen under this situation, complaining about pressure on their margins. In view of this situation, overall manufacturing activity was reported to have slowed down to some extent.

Discounts
Manufacturers who were until recently, eager to pick up rough from the secondary market, even at some premium, were no more inclined to do so in view of the slackening of demand for polished stones. This can be seen from the fact that certain categories of rough diamonds were now available at discounts ranging from 4 to 6 per cent. Not long ago these varieties of rough diamonds, commanded premium ranging about 3-4 per cent over the producer-prices.

Prices Causing Concern
In view of ragging demand, prices for polished diamonds of certain categories have also softened, causing considerable concern to manufacturers as well as trade circles. Over the past one or two months, prices of good quality stars have come down to about Rs. 42,000 per carat from the earlier level of Rs. 50,000 per carat. Potential buyers are now generally inclined to postpone their purchases.

Prices of some other categories of polished diamonds have also softened to a varying extent over the past couple of weeks. Consequently, business sentiment remains shaken at present.

Under this situation, manufacturers are inclined to operate at lower capacity in order to avoid accumulation of stocks. Some observers seem to be of the view that the present situation might continue at least until the Lok Sabha election results are out. This explains why the demand for rough, particularly in the secondary market, has slackened now.

Money Stringency
Earlier it was easy to borrow funds from banks to hold stocks. Recently, however, certain banks turned reluctant to extend adequate credit facilities to this sector, in view of defaults by some major borrowers. Those who still need to borrow have to turn to private moneylenders, who are reportedly charging interest at the rates of 18 to 21 per cent per annum. Private moneylenders are said to be carrying on this activity on selective basis.

Jewellery Shows Below Expectations
This also explains why the response to some jewellery shows that were organised in some countries during the last two months, received less than expected response. Though the response from exhibitors might have remained unchanged that from serious buyers was reduced. Hence a number of exhibitors were unable to do business to satisfy their expectations. Some exhibitors complained about over-crowding of such fairs. Though organised by different countries, they came about nearly around the same time, or at small intervals.

Diamonds Shipments Decline
Shipments of polished diamonds in 2013 from the country were certainly better than in the earlier year. However, they could not reach the level achieved in 2011, as can be seen from the following estimates in this regard.

Despatches of Diamonds (in US$ Million)
2011 21.01
2012 16.98
2013 20.46
It remains to be seen how the global markets for polished diamonds behave in the coming months.

Gold Jewellery Exports Go Down
Exports of gold jewellery from the country have been sharply down during the current year so far, in view of shortage and high prices of gold in the wake of imposition of high import duty on gold to face the problem of high current account deficit. The authorities concerned have however, not been able to announce any alternative scheme for the import of gold to promote exports of gold jewellery from the country. The government expects that there would be sufficient gold available to gold jewellery exporters under the 80:20 Scheme. Exporters, however, contend that this scheme has been far from satisfactory, as can be seen from declining outflow of gold jewellery from the country.

Bullion Shaky
The U.S. Fed has decided to curtail its bond purchase program to US$ 55 bn. per month from the current 65 bn. per month now. International political situation might continue to affect the market sentiment for some time more. Meanwhile in the overseas market, gold was placed on March 18, around US$ 1383.53 per ounce, while silver was quoted around US$ 20.78 per ounce. In the domestic market standard gold was traded around Rs. 30,170 per 10 grammes, while silver was quoted around Rs. 46,560 per kg. The undertone of the market remained shaky.

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