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Q&A: Varda Shine, Diamond Trading Company

'Diamond prices will keep rising on reduced supply'

Dilip Kumar Jha  |  Mumbai 

Varda Shine

Varda Shine, CEO of (DTC), the marketing arm of De Beers, which produces close to 40 per cent of the world’s supply of unprocessed stones, is currently on a tour to India for assessing the market. She spells out her observation of growth in an interview with Dilip Kumar Jha. Edited excerpts:

You visit India at the beginning of the new financial year. What were the main differences this year versus last year?
During my visit to many jewellery retail shops this year, I found a multifold increase in consumers’ enthusiasm. Diamond processing units in Surat have achieved almost 100 per cent of capacity. A majority of footfalls in the jewellery retail shops were turning out as customers. This is a positive sign.

Increase in prices of both precious metals and stones have multiplied their interest towards diamond jewellery. Infrastructure like the is world class. Banks which were “cautious” last year have turned positive this year towards funding for the business. If the trend for the first few months continues, diamond jewellery demand will grow by 20 per cent this year as well.

How do you see the gradual shift in consumers’ perception from “emotional” to “investment” in the jewellery segment?
Banking largely on wedding sets, we have been marketing diamonds on “emotional” grounds for the past 60 years for all classes of people between 18 and 60 years and will continue to do so in the future as well. But, a visible shift is seen in consumers’ perception in the last couple of years, of growing confidence with certification and buy-back guarantees. Inherent gold consumers in India have gradually started diversifying a part of their investment to diamond jewellery segment. Gold is selling in India as a commodity. But consumers have gradually started understanding that diamond jewellery has an investment value.

Is there any specific reason for halving minimum thresholds for 2009 to become eligible for Supplier of Choice (for DTC)?

The global economic meltdown started in September 2008. Hence, in late 2008, the entire diamond industry was struggling with less consumer turnouts. The main objective for reducing minimum thresholds is to make more companies eligible and raise competition among them.

Rough diamond prices shot up over 300 per cent in two years due to reduced supply. Do you see miners restoring the 2008 output cut in the near future?
We have not discovered any new mine coming on stream in the last 10 years. In India, too, we identified a couple of mines but excavation is yet to start. The feasibility study on a recently discovered mine elsewhere is currently on. Even if we discover a mine today, it would take at least five to 10 years to get the first piece of diamond. Hence, no new mine is set to commence operation in the next 10 years. We will have to deal with reduced rough supplies.

Meanwhile, De Beers, which contributes 38 per cent of global rough diamond supply, plans to raise output by 20 per cent to 38 million carats this year. Next year, the company plans to raise rough diamond output further to 40 million carats. I am not sure of 300 per cent but rough diamond prices, which move in line with polished diamonds, have certainly gone up. In future, too, it will continue going up on reduced supply.

Would this abnormal price escalation in natural diamonds boost production and sales of synthetic diamonds?
I do not think so. The diamond is a symbol of love and consumers believe in natural love; hence, they will continue to buy natural diamonds. Second, synthetic diamonds are manufactured based on a technology which gets outdated after a specific period of time. A natural diamond is forever.

What is the current status of supply resumption from Zimbabwe? Will it ease a part of existing supply pressure?
Officials of the Kimberley Process (a certification scheme begun by the UN in 2003 to prevent diamond sales from financing war or human rights abuse) are meeting on Thursday for assessing the situation. We hope the deadlock will be resolved in the meeting. Meanwhile, we have suggested to our members that procurement of diamonds from Zimbabwe without an accompanying Kimberley certificate will be a violation of our guidelines. Therefore, we advised our members not to procure rough diamonds from Zimbabwe until the issue is resolved. But, I do not see any change in fundamentals if supply is restored from Zimbabwe.

Looking at some recent buyouts, it is evident that jewellery retail chains in Europe are ready to merge with Asian giants at dirt-cheap prices. Do you see it as an indication of a consolidation in jewellery retailing?
Europe is yet to recover from the economic slowdown after countries like Iceland sought a bailout package. The problems faced by Ireland and Greece will take time for European countries to recover. I would not say the the opportunity is only in Europe; the consolidation is happening all over the world.

Your forecast for 2011?
The growth in diamond jewellery will largely be driven by India and China, due to the growth in overall economy. Diamond jewellery demand in China grew by 25 per cent, while growth in India’s jewellery demand was 31 per cent in 2010. India, which cuts nine of every 10 diamonds produced in the world, is banking largely in small diamonds, while China focuses on diamonds over 50 points (100 points = 1 carat). Hence, the two Asian neighbours are complementing each other, which is good for the global diamond industry.

We are forecasting a marginal decline in jewellery demand from Japan. But a recovery is imminent in the US, as more consumers are coming to jewellery shops for buying. Hence, overall growth in jewellery demand is estimated at high single digits this year.

First Published: Thu, April 14 2011. 00:17 IST