Global diamond business
roiled as cash crunch hits Indian stone cutting
Send a link to a friend
[December 27, 2016]
By Rajendra Jadhav and Susan Taylor
SURAT,
India/TORONTO (Reuters) - The global diamond industry is facing
disruption that could stretch through the first few months of next year,
including Valentine's Day in February, as a result of Indian Prime
Minister Narendra Modi's radical move to abolish most of the nation's
cash overnight.
In the western Indian city of Surat craftsmen usually spend 10-12 hours
a day in small mills or grimy sheds cutting and polishing 80 percent of
the world's diamonds but the business is based on cash and the
demonetization of the high-value banknotes from Nov. 8 has prevented
many from operating. Thousands of diamond brokers in the area's narrow
lanes are also doing little business.
The lack of cash is not the only problem for an industry that employs 1
million people in India, most of them in this city. Modi's shock
treatment is intended to make it much more difficult for those
laundering ill-gotten gains or evading taxes, and that means diamond
buyers are demanding proof of tax payments that are often not available,
the traders said.
Top diamond miners, such as Anglo American-owned De Beers and smaller
Canadian producers such as Stornoway Diamond and Dominion Diamond are
seeing weaker demand and prices for cheaper stones used in lower-priced
jewelry.
![](http://archives.lincolndailynews.com/2016/Dec/27/images/ads/current/graue17_spark.png)
The picture for retailers and consumers of diamonds is less clear. The
cash crunch has also badly hurt consumer demand for diamond jewelry in
India, the world's third-biggest market.
That means there are more of the cheaper finished stones to export,
helping to create a temporary glut and lower prices at wholesaler and
store level. However, that may not last if the cutters and polishers of
India can't get back to work soon.
But the luxury buyer doesn't have to worry. Much of the higher-value
jewelry business, with the highest grade one-carat stones usually
costing more than $14,500, is protected because cutting and polishing is
also done in Israel, Belgium and by bigger Indian companies that rely on
bank transactions.
"The knock-on effect of Indian demonetizations has meant a reduction in
the prices of lower quality diamonds," said Tobias Kormind, managing
director of 77 Diamonds, an online jewelry retailer based in London. "As
a result, we've seen an increase in demand for those kinds of diamonds
as our clients have snapped up these favorable deals."
In India, jewelry demand typically climbs in the winter months' wedding
season. But this year sales are plunging as nearly two-thirds of jewelry
is usually purchased with cash, which is in short-supply.
Ishu Datwani, owner of Mumbai-based Anmol Jewellers, says his sales are
down nearly 70 percent since the government scrapped the high-value
notes.
The demand is unlikely to revive any time soon as India struggles to
dispense enough new notes, industry officials say.
"During the cash crunch, diamonds are one of the last things people want
to buy. At least for the next six months demand will remain weak," says
Praveenshankar Pandya, head of India's Gem & Jewellery Export Promotion
Council (GJEPC).
The crisis hit at a time when there were plenty of stones in the retail
pipeline or being processed. India's rough diamond imports between April
and November jumped 30.5 percent, while exports of cut and polished
diamonds during the period rose 12.2 percent, GJEPC data shows.
[to top of second column] |
![](../images/122716pics/busine19.jpg)
A supervisor checks the
shape of a polished diamond inside the diamond processing unit at
Surat, in the western Indian state of Gujarat January 5, 2013.
REUTERS/Amit Dave/File Photo
![](http://archives.lincolndailynews.com/2016/Dec/27/images/ads/current/harris_hodnett_lda_LUAL_2016.png)
Diamond processors bought rough diamonds aggressively, expecting a jump in
exports and rising Indian demand, but now they are struggling, said trader
Dharmesh Navadiya.
In trading hubs like Hong Kong, many retailers are stuck holding diamonds they
bought three years back at higher prices expecting robust demand from China that
didn't materialize.
"There
has been no supply crunch as the market is already flooded, especially the low
carat diamond," said Jonathan Rotbart, a distributor of gems in Hong Kong.
"SHOCK TO THE MARKET"
"The market is frozen. We don't have cash to buy diamonds," said Kalpesh
Savaliya, a trader for 25 years who was sitting cross-legged on a mattress
behind a low wooden desk in Surat.
As small operators close, India's rough diamond imports could decline by up to
25 percent between December and March, said Mehul Choksi, chairman of Gitanjali
Gems, India's biggest diamond jeweller.
Miners are already feeling the pain with some lower-quality stones being
discounted by more than 25 percent from prices before demonetization, said
Panmure Gordon analyst Kieron Hodgson, in a recent note to clients.
In its final 2016 tender, De Beers said sales were affected by a slowdown in
lower-value rough stones, a trend Hodgson expects to see repeated for at least
the next three months.
Dominion Diamond, with stakes in two Canadian mines, expects its sales in its
fourth quarter ending Jan. 31 will be hurt by the Indian cash crisis, and sees
weaker demand for small stones extending to its fiscal first quarter.
Demonetization was a "shock to the market," said Chief Executive Brendan Bell.
![](http://archives.lincolndailynews.com/2016/Dec/27/images/ads/current/best_friends_sda_120215.png)
Stornoway, which this year finished building Quebec's first diamond mine,
withdrew smaller, lower-quality stones from its first-ever tender in November
due to poor demand and prices.
But Mountain Province Diamonds, which owns 49 percent of Canada's newest diamond
mine, Gahcho Kue, indicated it isn't overly worried. "Small diamonds are roughly
80 percent of your production and 20 percent of your revenue – and the demand
for the large diamonds remains robust," said CEO Patrick Evans.
"The diamond market is fine. Average prices are up 7 to 9 percent this year, but
small diamonds are down about 50 percent."
(Additional reporting by Nicole Mordant in TORONTO, Jan Harvey in LONDON, Nallur
Sethuraman in BENGALURU and Marcy Nicholson in NEW YORK; Editing by Martin
Howell)
[© 2016 Thomson Reuters. All rights
reserved.] Copyright 2016 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |