India's exports of cut, polished diamonds see a resurgence
AFTER two dismal years, diamonds are set to become India's best friend again. Exports of cut and polished diamonds, which account for 85 per cent of India's gems and jewellery exports, surged 13.5 per cent between April and June 1998, to earn $980.79 million.
Last year, India exported 20.6 million carats of cut and polished diamonds worth $4.49 billion, up 6 per cent from the previous when it had declined by 6 per cent. This puts India's marketshare of the total world polished diamond output at 40 per cent in value. In volume (carat) terms, the share comes to 80 per cent, or 8 out of 10 pieces of polished diamonds produced in the world.
Says Praveen Shankar Pandya, chairman of The Gem & Jewellery Export Promotion Council: "The industry will record an improved performance in the next few months and looks forward with great hope to the forthcoming season, buying for which will begin in the next few weeks."
For the past two years, the $12-billion global diamond industry has been going through a turbulence. It started in 1995-96 when some of the diamond-producing nations rebelled against the virtual monopoly of De Beers. Till then most producers had negotiable marketing contracts with De Beers which sold the roughs to diamantaires all over the world through the Central Selling Organisation (CSO).
After the collapse of the USSR, the Russians, who were major producers of rough diamonds, were so desperately in need of hard cash that they started leaking rough diamonds at prices lower than CSO prices. Many of these roughs found their way to India. Consequently, in mid-1996, Russia did not renew its contract with De Beers. Around the same time, Argyle, an Australian diamond mining company, too ended its contract with De Beers and announced a plan to start its own marketing wing for roughs. Fear gripped the industry that all this would lead to a price war. Sentiments were depressed, supply of roughs became erratic, and prices dipped.
Says industry expert Chaim Evan-Zohar: "The great surprise of 1996-97 is that CSO lost significant marketshare, both Russia and Argyle rebelled against the traditional system, the price of the cheaper rough, which counts for about 35 per cent of the market both in value and volume, dropped significantly and was effectively removed from CSO market control...and none of these caused the inevitable catastrophe.... But a price was paid, mostly by the Indian market. Others were also adversely affected, including De Beers."
In December 1997, Russia negotiated with De Beers to rejoin CSO. Says Pandya: "Our team met the Russians as well as officials from De Beers and Argyle. The focus of the visit was to pave the way for the producing centre of Russia and the manufacturing centre of India to move towards a healthier marketplace. India also expressed its interest in direct supply of goods, which are outside the CSO-Russia contract."
The pressure from Indian diamantaires worked. CSO has kept a tight rein on roughs, helping the local industry to adjust their inventory to comfortable levels. But marketing hasn't kept pace with the sheer volume of the manufacturing output. Though the share of Indian-type polished set in diamond jewellery in the US is outgrowing the share of gem qualities, there has been a significant overproduction of polished in recent years.
"Add to that the weakening of the Japanese and Southeast Asian economies, and the marketing of polished diamonds has come under severe pressure," says Ashish K. Mehta, a diamond merchant. Japan, which was buying 30 per cent, has cut its offtake to 10 per cent. Still, "the currency devaluation made import of roughs very expensive in Indonesia, Malaysia and Thailand, resulting in a diversion of demand to India. A strong US economy also helped us," explains Mehta.
The real threat, according to merchants, is posed by China which has imported roughs worth $300 million. "We have experience on our side, but our advantage of cheap labour costs may be challenged," says one. One ray of hope comes in the form of developments at Argyle's parent company, a part of the Canadian transnational Rio Tinto. Rio Tinto is prospecting for diamonds in Canada, and has had encouraging results from the Buffalo Hills project. Argyle Mines in Australia is estimated to last only up to AD 2003. But, industry observers say, if the Canadian venture is successful, Rio Tinto could give De Beers a good run for its money. They are almost as large as De Beers and by 2003 will have substantial marketing experience as well.
Till then, demand for polished diamonds could outstrip supply of roughs keeping prices steady. The industry is counting on the bullish demand and on diamond prospecting in Madhya Pradesh, Orissa and Golconda in Andhra. With the uncertainty about the supply of roughs over, even a modest 10 per cent growth a year would help the industry achieve a $8-billion mark by AD 2003.