Diamond demand drops on lack of liquidity prices unlikely to fall

Demand for polished diamonds remains dull in international market with buyers staying away due to lack of liquidity. Industry sources maintained that costly imports of rough diamonds had shot up the production cost for diamantaires, who are less likely to bring down the prices of polished diamonds in spite of weak demand.

Even as rupee has remained weak against dollar, diamond traders do not find it lucrative anymore to export in the overseas markets owing to weak demand, which would force them to cut prices of polished diamonds. Many diamantaires find the weakness of Indian currency not being favourable to the sector anymore.

Data provided by Gem & Jewellery Export Promotion Council ··(GJEPC), India's polished diamond exports fell by 44 per cent year on year in value terms to US $ 1,245 million (approx. Rs 7000 crore) during the month of May 2012. This was the fifth straight monthly decline this calendar year. Also, the volume of diamond exports has fallen by about 50 per cent to 2,574 million carats during May, 2012 against the same month last year.

"There is not much benefit of weak rupee now as the international demand has gone down significantly. We are unable to cut prices beyond a certain limit as our costs have been too high due to costly import of rough diamonds," said a Surat-based diamond trader and exporter.

It may be noted that during the first five months of the calendar year of 2012, India's polished diamond exports fell by 42 per cent to US $ 7,913 million (approx. Rs 44,000 crore) against the same period last year.

There is a drop in demand for diamonds in the domestic markets too. According to industry insiders, weak economic scenario and liquidity shortage hampers demand for diamonds.

"Domestic market is faced with liquidity shortage. Purchasing power has gone down sharply and economy is not in a good shape. Therefore, demand for polished diamond is weak. However, it is not much affecting the prices though," said Pritesh Jhaveri from India operations of European Gemological Laboratory (EGL) - a diamond certification agency.

Rupee quoted at Rs 51.71 a dollar during January and dropped to a record low level of Rs 57.32 against a dollar during June. However, it recovered after the interventions from the Reserve Bank of India (RBI) to close at Rs 54.94 a dollar on July 5. However, rupee slipped again on Monday and crossed Rs 56 a dollar.

The rough diamond imports dropped by 20 per cent to US $ 1,135 million (approx. Rs 6300 crore) during May, 2012, while exports of rough ·diamonds have declined by 25 per cent to US $ 116.9 million (approx. Rs 644 crore).

"There has been a fall in export demand, but we are facing weak demand in domestic market as well. In a normal year, this is the time to start working for Christmas orders. But people are not buying costly rough diamonds fearing weakness in demand to continue further," said an official of Surat Diamond Association (SDA).

Meanwhile, industry players expects markets to revive once the currency stabilises and fresh demand props up from the international market for Christmas festivals.

"With rupee improving in recent days, we hope things to start improving from end of July or August onwards. Till then, it seems to be standstill as lot of finished goods is already lying with the diamond players," said the industry source.