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Overseas Diamond Demand Divergent But Overall Prospects Upbeat
Varieties Sought: Shortage of Rough Persists
By: Administrator
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Jul 6 2005 12:00AM
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Reference: 1336  

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Mumbai: The diamond trade is witnessing a divergent trend in the demand for cut and polished diamonds in the world markets at present. However, it remains, on the whole, upbeat about overall prospects for the year.

Currently there is good demand for sparklers from Hong Kong and some Far-Eastern markets. Hong Kong has established itself as a distribution center for the neighbouring countries as well. The off-take by some European markets is also fairly good, as the consumers there finds diamonds and jewellery more affordable in view of the softening of the US dollar. However the US demand remains slack. This is because of problems being faced by the US economy.

US unemployment rate remains high. Besides, those employees who have been able to retain their employment are unsure about continuation of their jobs. Naturally, they try to spend as less as possible on luxuries.

The US economy is facing problems of very high trade-deficit and budget deficit. In the past, East-Asian economies as well as central banks of many other countries used to invest their foreign exchange surpluses in U.S. dollars or American securities. As the US is unable to reduce these deficits, it's dollar remains weak. Some countries like South Korea, Japan etc. are reported to be therefore contemplating to reduce their fresh investments in American currency or dollar denominated securities. If these countries act according to their present thinking on the subject, the US currency could weaken further. The rise in oil prices is also a matter of concern for the US as well as for several other countries. Under this situation, the US demand for diamond and jewellery is unlikely to gather momentum unless there is some improvement in fundamentals affecting the country's economy. Many shippers are therefore concentrating their attention on other markets.

The manufacturing activity of the industry is affected to some extent at present. While major manufacturers who have access to some direct suppliers of rough stones are working at full capacity, many small and medium scale units are operating to their capacities partially only because of shortage and high prices of rough in the open market.

Among polished stones, minus 2 and minus 6.5 are in short supply at present. Over the past four months or so, their prices have risen by 20-25 per cent. The plus 11 variety is also in short supply. It's prices have hardened during the period by nearly 10 per cent, Melees are slow. In the market for rough, minus 11 variety is in considerable short supply.

The main reasons for the present overall shortage of rough are that during the past few years considerable additional manufacturing units have been set up, and the overall supply of rough is not enough to meet out the increased requirements. Another factor which is believed to be responsible for the present shortage of rough is the sharp decline in production at Argyle. While some other mines were able to step-up their production, overall output of rough in 2004 is believed to have been lower than in 2003. The entry of some speculative elements in the market for rough also has resulted in escalating prices. The tender system adopted by some mining companies for the sale of their rough has also been responsible for pushing up prices in the open market. This situation does not seem to ease in near future as new big diamond mine is likely to be commissioned in near future.

Prior to the presentation of the Union Budget trade circles seemed confident that the import duty on cut and polished stones would be abolished in view of such demand made by the Gem & Jewellery Export Promotion Council. Besides, a strong Israeli delegation that came to India had also suggested to the Union Government that this import duty should be removed for improved business relations between the two countries. No such announcement was made in the Budget causing surprise to every one

The Union Budget on the other hand imposed two per cent excise duty on branded jewellery with immediate effect. Since the budget speech did not properly define "branded jewellery", there was panic among all jewellery manufacturers. Jewellers in Mumbai and several other places rolled down their shutters in protest against this levy. The Government thereafter clarified that the new excise levy would not apply to jewellery bearing the jewellers' identification marks. While this clarification helped in cooling down tempers of a majority of jewelers, several others who had recently launched their brands to promote sales of branded jewellery were not happy with this proposal, not because of the quantum of levy, but because of fears about 'Inspector Raj'. They argue that the Government can collect the estimated revenue in some other-way and spare them from compliance to the excise regulations. It remains to be seen whether the government is prepared to adopt such a sane approach.

Meanwhile actual despatches of cut and polished diamonds from the country in the first 11 months of 2004-05 are up nearly 28.11 per cent at US$ 9,677.45 million, compared with US$ 7,554.10 million in the same period from the identical parts in the earlier year. Gold jewellery exports during the period have risen by 61.91 per cent to US$ 3,275.75 million, from US$ 2,023.23 million in the same period of the earlier year.

In view of the weak dollar, bullion prices are nearly firm at the moment. In the overseas market the yellow metal was placed around US$ 437.50 per oz. and silver around US$ 7.34 per oz. on March 18. In the local market standard gold was placed on that day at Rs. 6,315 per 10 grammes while silver was quoted at Rs. 10,930 per kg.

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