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Delayed Payments Causing Concern & Money Stringency : Diamonds & Gold Jewellery Exports Upbeat...
By: Administrator
Nov 6 2007 12:00AM
Reference: 2256  


  • Sub-prime Crisis
  • US Interest Rate Reduced
  • Recent Defaults Causing Concern
  • Money Stringency
  • Pressure on Margins
  • Demand Pushes up Rough Prices
  • Pre-Christmas Season Delayed
  • Diamond Exports Up
  • Gold Jewellery Upswing
  • Bullion Buoyant.

Of late the demand for cut and polished diamonds, particularly from some markets in South-East Asia and the Far-East (except Japan) has considerably improved . If trade circles are not yet happy it is because of lack of similar improvement in business conditions particularly in the US market. European markets as well as Japan remained quiet, till mid- September 2007. Since the USA, Europe and Japan taken together, account for nearly two-thirds of the annual global demand for diamond jewellery, normal cheer cannot return to the Indian diamond industry and trade, until these markets show some signs of revival of demand.

Till now, the sub-prime problems and consequent turbulence in the financial market cast their shadows on business conditions in the USA and to some extent in certain European markets as well. This situation gave rise to fears that the US economy which was already slowing down, might be driven into recession. Jobs were being slashed in the housing, mortgage and financial sectors of the US. This made most consumers cautious when it came to spending on luxuries. Thus neither retailers were eager to replenish for the ensuing busy season nor the stockists showed inclination to place fresh import orders. In the absence of improvement in offtake at the consumer level, a situation akin to a traffic-jam had developed. This may now change with the intervention of US Federal Reserve Board.

Of course, some central banks were providing liquidity to the financial markets to avoid deepening of the crisis but without much success. As widely expected, the US Federal Reserve Board has announced on September 18 a cut of 0.50 to 4.75 per cent (from 5.25 per cent) in the interest rate to prevent the US economy going into recession. It remains to be seen to what extent it succeeds in improving consumer psychology. Since the US economy depends largely on domestic consumption, an improvement in consumer confidence is very vital. To what extent and how soon this will happen cannot be predicted but the step taken by the US Federal Reserve Board is considered to be in the right direction.

Another problem that has continued to cause concern to the diamond trade and industry, has been due to recent failures of about 10-15 Indian firms in Mumbai, Surat and Navsari. Taken together this has considerably shaken market sentiment as it has led to fears that a few more such failures may take place by ensuing Diwali, in view of considerable accumulation of stocks of slow moving varieties and financial stringency. Trade circles complain that these days overseas payments are mostly delayed by 3-4 months beyond the agreed credit terms. Those who ship goods on credit to overseas firms continue to worry during this interval. Earlier there have been some defaults abroad as well thus amounts aggregating Rs. 250-300 crore due to Indian exporters were blocked by these mishaps.

As a result, there is considerable money stringency in the market. Of course, leading banks advance funds to select borrowers but all exporters do not get such facilities to the same extent. Many of them are therefore forced to approach non-institutional financiers who charge interest at the high rate of 18-24% per annum.

Yet another problem faced by the industry arises from intermittent hikes in the prices of roughs. As the overall global supply of rough is not enough to satisfy huge manufacturing capacity that has been created, producers of roughs hike their prices from time to time. On the other hand, manufacturers are unable to get proportionate increase in the values of polished gems of most categories. Their margins, therefore remain under pressure. There is no solution to their problems until the demand for polished goods picks up. Of course bigger stones of one carat or more in size remain strong because of their limited production and better demand but it is very difficult to sell smalls like stars.

In the market for roughs, there still prevails premium in the range of 5-6 per cents on certain varieties. This strange phenomenon is due to the fact that most manufacturers have resumed production in anticipation of the pre-Christmas demand. When they simultaneously rush to the same open market, rough prices immediately harden in view of the overall tight demand and supply position. Of course, several manufacturers are currently operating their factories at lower than their installed capacities. In spite of this, manufacturing activity is estimated to be running at 70-80 per cent of the reduced capacity. Quite a few jewellery manufacturing units located in the SEEPZ area are reported to be facing very tough times.

Most of these jewellery units have been set up with an eye on the US market. As that market remains subdued, several such units are facing problems. Others who have developed other markets may not however be experiencing such difficulties.

In the past overseas buyers used to visit the Indian market by mid-July every year to make the best selections for the next busy season. Such seasonal purchases have commenced late in recent years. One reason for this is the existence of sufficient stocks in the pipeline. Secondly, since enough manufacturing units have come into existence it is always possible to get whatever one wants at any time and that too on long credit terms or even on memo basis. Last year’s pre-Christmas season started around early September. This year it was still awaited when September was more than half way through.

These days manufacturers despatch their produce mostly to their branches or sister concerns as soon as it gets ready. This helps them to keep their wheels moving by availing of shipment credit.

Exports of cut and polished diamonds in the first five months of 2007-08 show a rise of 24.73 per cent at US$ 5,091.98 million, compared with US$ 4,082.33 million in the same period of the preceding year. Caratwise also, dispatches have been higher at 171.16 lakh carats, against 121.88 lakh carats in the same period of the last year.

Exports of gold jewellery during this period have also been higher by 23.91 per cent at US$ 2,236.08 million against US$ 1,804.58 million in the same period of the preceding year.

Buoyant conditions prevail in the bullion market for several reasons, such as rise in oil prices, weak dollar, recent turbulence in financial markets and fears about more political tensions in certain regions. On September 18, 2007 gold was quoted abroad at US$ 717.35 per oz. and silver at US$ 12.91 per oz. In the domestic market standard gold was placed on that day at Rs. 9,470 per 10 grammes and silver at Rs. 17,735 per kg. The undertone of the bullion market appeared firm.

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