Diamond industry on balancing act as Rupee depreciates

Amid tight global economic conditions and weakening Indian rupee, the diamond industry in India seems to be doing a balancing act by limiting the imports of rough diamonds and clearing inventories of polished diamonds in overseas markets so as to cash-in from the appreciation of the US greenback.

Indian Rupee had fallen to its record low levels earlier this week at Rs 52.73 against a US dollar. The Indian currency has seen its sharpest fall against dollar over the past three months. This prompted diamantaires in Surat, India's diamond hub to consider reducing imports and make all efforts to clear the existing inventories take maximum benefit from the currency fluctuations.

However, industry players maintained that it would be a tough task to sell a luxury commodity like diamond in the major markets including the US and Europe, which are already ailing due to debt crisis.

"Raw material purchased about three months back was cheaper by at least 5-7 per cent than the current prices, thanks to appreciation of dollar against Indian rupee. It is favourable for those who have made stock of rough diamonds. However, selling in the overseas markets is going to be a tough task especially when two major markets of US and Europe are in bad shape," said Pravin Nanavati, a diamond industry expert and former president of Surat Diamond Association (SDA).

Meanwhile, high import prices of rough stones and labour cost has escalated the overall cost for diamond industry since the second quarter (July to September). Also export demand remained dull due to weakness in the overseas markets. This was reflected as export realisations from cut and polished diamonds during April to October 2011 stood at US $ 15195.08 million (approx. Rs 69,612.63 crore), which showed a growth of about 2.62 per cent from US $ 14807.71 million (approx. Rs 67,906.68 crore) in the same period last year.

The data from Gems and Jewellery Export Promotion Council (GJEPC) revealed that export realisations from cut and polished diamonds during April to June 2011 stood at US $ 6501.27 million (approx. Rs 29071.61 crore), which showed a growth of about 9.77 per cent from US $ 5922.77 million (approx. Rs 67906.68 crore) in the same period in 2010-11.

It is evident from the fact that export realisations during April to September 2011 recorded a growth of 4.39 per cent over last year at US $ 13295.73 million (approx. Rs 60258.74 crore) from US $ 12736.61 million (approx. Rs 58707.90 crore) in the same period last year.

Industry insiders maintained that firms are flush with orders at present until Christmas. However, uncertainty looms for the demand in February-March, for which purchases of raw material has to be made in November-December. "Exporters are maintaining a balance between imports and exports. Most of the big players are doing natural hedging by managing their rough diamond inventories," informed a senior official of C Mahendra Exports Ltd.

Industry insiders maintained that domestic demand is strong and sales would continue to grow despite economic uncertainty. Good demand is likely to start coming up from countries in Far East and Middle East regions during the Christmas-New Year season. "Purchases are being made and local demand would be strong even after the current marriage season. Therefore, we see no impact of currency fluctuations on diamond prices or demand," said Aagam Sanghvi, director at Sanghvi Exports.

"Situation may not be so bad but it is not so rosy either. Things may get normal only if we see some stability in US dollar," added Nanavati.