India a factor in diamond trade migration from Antwerp to Dubai

For gem traders and jewellery makers over the world, Dubai remains an important trade centre for pearls. But, of late, a growing portion of trade in rough diamonds is getting shifted from the Belgian port city of Antwerp to Dubai, a constituent of the United Arab Emirates (UAE). Earlier, the rough diamond cutting and polishing business had moved from Antwerp to Surat in Gujarat and a few other places, due to cost considerations.

Business in rough, is now being squeezed out of the diamond district of Antwerp, which accommodates a World Diamond Centre and four trading exchanges, as dealers are finding it difficult to get bank funding. The big blow to dealers there, mostly Jews and Indians, came when Antwerp Diamond Bank (ADB) started the process of winding up operations globally, leaving a big gap in trade funding.

ADB used to make available around $1.5 billion to the trade. Also, toughening of banking regulations and non-governmental organisations doubting the effectiveness of the Kimberley Process Certification scheme (KPCS) in stopping all 'blood diamonds' finding their way into the legal market have made some other banks curb lending to the trade.

ABN Amro, which has a big exposure in the trade, and others are forcing traders to produce more cash when they bid and buy rough stones. Regulatory concerns apart, banks providing funds have growing concerns about operations of the industry, particularly relating to prices of rough diamonds, which leave inadequate margins for downstream polishing and cutting and making of jewellery.

A Mumbai-based trade official says weak retail sale outside the US and a demand outlook likely to remain weak till mid-2017 have forced mining groups, led by De Beers, to rethink pricing strategy. So, we have De Beers' strategy head, Bruce Cleaver, announcing "the time is right for us to try and help boost confidence in the industry". A difficult market has changed the attitude of the world's largest diamond miner since 2011, when it adopted a "more aggressive" pricing policy by cutting the discount between rough selling prices and the secondary cash market.

Miners' attitude change is, however, not making any impact on European banks, which remain wary of the trade. So, migration of business from Antwerp to Dubai, where local banks are more accommodative, is a fait accompli.

Besides UAE-based banks promising finance to merchants, what is to aid Dubai gain stature as a diamond trading centre is proximity to India, the world's largest importer of rough gemstone. Promise of easy financing by UAE-based banks is encouraging traders, many of whom are of Indian origin, to patronise Dubai. Nearly 80 per cent of the world's rough diamonds are polished at Surat, where factories are now facing the heat of demand fall in China and India.

Dubai Multi Commodities Centre, which operates a diamond certification scheme is the entry and exit point for roughs. From virtually next to nothing at the beginning of the century, UAE's share in diamond imports climbed to $5.9 billion in 2014, compared with $16 billion for Antwerp. Dubai has got a lot of catching up to do.

To hasten the process of Dubai claiming a bigger share of annual global trading of $57 billion in roughs, National Bank of Fujairah (NBF), owned by the governments of Fujairah and Dubai, made loan offers to diamond traders earlier this year. Traders need bank accommodation to buy roughs and they repay loans by selling these to diamond polishers.

In a recent interview to Bloomberg, the NBF official heading the diamonds unit said he foresaw "a big shift of rough diamond traders to Dubai". The stature of Dubai in diamond business will get a boost as it takes over the chair of the United Nations-constituted KPCS in 2016. In the 12 years of its operation, the share of blood diamonds in total production and trading of the gemstone is claimed to be down from five per cent to less than one per cent.

Many, however, contest this claim on the ground that the scope of conflict diamonds is restricted to mining and selling of roughs for funding "violence aimed at undermining legitimate governments". They want KPCS to also include diamonds whose proceeds are used to subvert human rights in some African countries. Dubai will be under pressure to expand the scope of conflict diamonds when it takes the KPCS chair.