Falling rupee may dent diamond-demand growth: De Beers

Indian shoppers spent 9% more on diamonds last year in rupee terms. Measured in dollars, demand dropped 5%

De Beers, the world's biggest diamond producer, expects the rupee's record slump to stunt sales growth in the third-largest market for the precious gems.

"Domestic demand in India was going like a train at the start of this decade," said Howard Davies, commercial head for De Beers' global sales. "That had a real slowdown last year as a result of rupee depreciation. That would be our expectation this year as well - growth in local currency terms but maybe not such a good picture in dollar terms."

The rupee retreated to a low of 61.2125 a dollar on July 8 and has plunged nine per cent this year. De Beers Chief Executive Officer Philippe Mellier predicted in a November interview that Indian demand would expand by at least five per cent in 2013.

"If the rupee continues to deteriorate, then certainly people's budgets won't stretch so far," Davies said in a telephone interview.

The rupee will drop to 62 a dollar by the end of this year, according to Nomura Holdings Inc, the most accurate forecaster in the last four quarters, based on data compiled by Bloomberg.

India lags only the US and China, accounting for about 10 per cent of global demand in 2011. That should rise to 13 per cent by 2016 as the worldwide market for polished diamonds swells to $31 billion from $23 billion, De Beers owner Anglo American forecast last year.

'More resistance'
Shoppers in India spent nine per cent more on diamonds last year in rupee terms. Measured in dollars, demand dropped by five per cent. De Beers encountered "a bit more resistance" to prices for the lower-quality stones popular with the Indian diamond-cutting industry at the latest of its 10 annual sales to invited buyers, held in mid-June, Davies said.

"It's a significant shift," he said. "Our game is stability in pricing, so we're not going to do anything knee-jerk."

De Beers increased prices at its uncut auctions, known as sights, by four per cent in May and by three per cent in April, according to a report by diamond trading network Rapaport. Rough diamond prices have risen about 14 per cent this year, according to PolishedPrices.com data.

The rupee's depreciation will put pressure on "fully priced" rough diamonds, said Anish Aggarwal, a partner at Antwerp, Belgium-based industry consulting firm Gemdax. "If it makes diamonds a little bit less accessible to the middle class, which is the key growth market, then that is a challenge."