Jewellers feel rupee rise is over, resume orders for gold
Dilip Kumar Jha / Mumbai Feb 07, 2012, 14:33 IST
Over 6,000 registered jewellers across the country have again started booking raw materials as they feel recent sharp recovery in rupee’s exchange rate is done and further rise may not be happening in near future.
They were stuck with high cost materials bought in November-december and sharp recovery in rupee from January had stunned them. Now as the currency equations are in their favour they have re-strategised their raw materials procurement strategy. Jewellery industry predominantly depends upon imports for raw material supplies and those who exports also have 75% cost as import cost.
Feared with the possible fall in rupee along with a rebound in gold and silver prices, Indian jewellers have started booking precious metals and stones afresh to take advantage of rupee’s appreciation. The major aim is to stock raw materials for next seasonal demand in May.
“That is obvious. Little over a month ago (on December 14, 2011) rupee fell to the level of 53.72 against the greenback. But, now the Indian currency has appreciated to below 49. Hence, this is a good opportunity for jewellers to book raw materials,” said Sanjay Kothari, vice chairman of the Gems & Jewellery Export Promotion Council (GJEPC), a premier trade body under the Union Ministry of Commerce.
The Indian currency shot up to trade on Monday at 49.08 after hitting the high of 48.83 last week. The current value of rupee shows a rise of 8.23% from its lowest level in December.
Generally, jewellery manufacturers procure raw materials to manufacturer jewellery three months ahead of the season. Since, the wedding season this year is forecast to remain thin, the jewellers plan to stock raw materials for the season beyond wedding period this year.
As a consequence, the raw materials orders have jumped over 15-20% this during the last few days as compared to the same time around previous year.
Rough diamond processors have also intensified booking to take advantages of the rupee’s appreciation, said Kothari.
India processes every 11 of the 13 rough diamonds mined across the world and unfortunately, pays in dollar. Hence, their business strategy largely depends upon rupee volatility.
“The rupee’s sudden change in value is a discouragement for exporters due to the possibility of lower realisation of exported goods. While, there will be no impact for domestic players,” said Rajiv Jain, chairman of the GJEPC.
Raw material cost constitutes around 80% of the value of the jewellery items while the value addition shares the remaining 20%. Hence, the rupee’s change in behaviour will impact only to the value addition component where Indian exporters would get lesser realisation.
Another major hurdle for domestic jewellery manufacturers is the rise in import duty of precious metals and stones. The government’s aim is to bring down the overall import of gold and silver in India which is highly unlikely as consumers have become habituated with wide fluctuations in prices.
Total gold and silver import in India is estimated at around 900-1,000 tonnes and 1,200 tonnes respectively in 2011.
"Generally, our labour input is between 5-10% and operational cost around 10%, the rupee’s volatility has not impacted so much. But depreciating rupee alongwith rising input cost made jewellery unaffordable for consumers. But, the appreciation in rupee will provide some breather to them which would help increase domestic sales," said Mehul Choksi, MD, Gitanjali Gems, India’s largest branded jewellery producer and retailer.
Gitanjali Gems is planning to pass on the benefit of lower raw material cost through appreciation in rupee to the consumers by revising jewellery price downwards shortly.
Large part of Indian jewellery trade is based on unaccounted cash. Therefore many with black money like to invest in gold/silver. The Govt must take effective steps to control flow of black money which will put stop to such large import of precious metals. Gold / silver import do not contribute to the economy therefore Govt must further increase the import duty on the metals. However care will have to be taken to ensure that such step does not result in smuggling of silver & gold.
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Over 6,000 registered jewellers across the country have again started booking raw materials as they feel recent sharp recovery in rupee’s exchange rate is done and further rise may not be happening in near future.
