March 5th, 2020 – Mumbai
The Indian diamond industry is facing an uncertain future with multiple challenges to tackle simultaneously. When diamond mining major De Beers reported the sale of $545 mln worth of rough diamonds in the first sales cycle of this year after a difficult 2019, it was an indication that the industry is on a recovery path.
But, just when the industry showed signs of improving at the beginning of the New Year 2020, after facing demand downturn from Hong Kong and China due to the US-China trade war and the Hong Kong riots, suddenly chaos prevailed with the outbreak of the deadly coronavirus in China.
Though India’s total global exports of cut and polished diamonds during December 2019 recorded a minor increase to $ 1.25 bln against the previous month, imports of rough lab-grown diamonds stood at $ 45.69 mln during December 2019, up from $ 14.75 mln in December a year ago. This indicated that the industry was on the verge of improvement and growth. But now, the first quarter is looking increasingly bleak as the Coronavirus outbreak hurts demand in Hong Kong, India’s biggest export market. December was better so industry members felt that it would recover, but from January onward the Coronavirus issue has surfaced. So January exports have been hit and it may take at least a month or two to recover.
India’s cut and polished diamond exports to Hong Kong have slumped 23% in the nine months to December from a year earlier to $5.4 bn. The country’s total exports of gems and jewellery to Hong Kong are down 9% to $7.4 bn in the period. With Hong Kong Trade Development Council (HKTDC) advancing the twin Shows— the Hong Kong International Diamond, Gem & Pearl Show and the Hong Kong International Jewellery Show—to May 18-21 due to the coronavirus outbreak, the Indian Gem & Jewellery industry is in a state of distress. Also, no Chinese or Hong Kong visitors are expected to visit the IIJS Signature -2020 as India has barred visas for travelers from both the countries.
In De Beers’ first sale of the year, prices of rough diamonds have risen by 3-4 per cent, but the Indian diamond exporters are not sure if the price increase will be reflected in polished diamonds, as demand from China, Hong Kong and the Far East is likely to take a hit due to the outbreak of Coronavirus. Besides, the Indian G&J Trade is disappointed by the Union Government-2020 Budget, which retained import duty on gold at 12.5% and polished diamonds at 7.5%; and no other sops offered to the diamond industry. Of late, Gold jewellery demand in India declined to 544.6 tonnes in 2019, a fall of 9% as compared to the earlier year. The decline was largely on account of a surge in the price of the yellow metal to a new six-year high in dollar terms during the second half of the year, with the domestic economic slowdown and muted rural demand also having an impact.
India is the world’s largest centre for cutting and polishing of rough diamonds and Surat is the hub for cutting, polishing and processing rough diamonds, exporting 85 per cent of the stones The outbreak of coronavirus in China is bound to affect sales of cut and polished diamonds if the situation does not come under control shortly. Polished prices will not go up and the margins of the manufacturers will come under pressure. The overall export of cut and polished diamonds in the first nine months of the current fiscal was down 17.14 per cent from the same period last year. The industry was expecting an improvement in exports in the fourth quarter following the US-China trade treaty. But as things stand today, exports are unlikely to go up in the fourth quarter
Reports in the Indian press highlight the worry that many diamond traders are feeling about the effects of the ongoing coronavirus outbreak. While there have been isolated incidents of the disease in India, most people are more worried about the effects on the country’s diamond trade, especially in Surat. According to media reports, the Surat industry could face losses of around $1.12 billion in the next couple of months, as Hong Kong is one of its main export destinations, which has declared a state of emergency because of the coronavirus outbreak. Hong Kong accounts for about 37 per cent of Surat’s total exports. Also, Gujarati traders in Hong Kong are returning back to India until the situation in the Far East improves, which means no business.
According to a TOI report, the Surat International Diatrade Centre’s (SIDC) Special Notified Zone (SNZ) located at Gujarat Hira Bourse (GHB) in Ichhapore has been declared customs area for carrying out import, trading and re-export of rough diamonds. And leading diamond mining companies from around the world are expected to descend in Surat by the end of February to sell their rough diamonds directly to the city’s diamantaires. But, depending on the situation during February end, it is left to be seen whether this will happen.
As far as annual import of rough diamonds in India is concerned, it is pegged at about $18 bn. About 70% of the rough diamonds are procured from the big diamond mining companies including De Beers, Alrosa, Rio Tinto, Dominion etc., while the rest comes into the country from the secondary markets in Antwerp and Dubai. But, as Indian banks operating in Antwerp, the hub of rough diamond trading, have either stopped diamond financing in the Belgian city or have cut down their exposure. In India, too, banks have tightened financing to the gem and jewellery sector.
However, Indian traders who buy rough diamonds from Russian mining major ALROSA have something to cheer about. Recent media reports have said that Russian banks have started granting loans to ALROSA’s foreign clients for the purchase of rough diamonds. This will help the Indian diamond trade that is starved of bank finance post the alleged Nirav Modi scam. It is said that ALROSA has also granted the flexibility to authorized Indian bulk purchasers to buy as low as 55% of the contracted volume so that they do not pile up inventory. “This will help those who buy rough diamonds from Antwerp. ABN Amro Bank has already reduced its financing for rough diamond purchases and cut down credit repayment period. So, if the Russian banks come forward with business-friendly lending norms, then it is good for the Indian diamond trade,” Gem & Jewellery Export Promotion Council vice-chairman Colin Shah.
Aruna Gaitonde, Editor in Chief of the Asian Bureau, Rough & Polished