Rising rough prices hit diamond polishing units

Prices have increased 25-30 per cent since March this year.

After almost a year, premiums are back in the rough diamond industry with demand improving on the back of revival in world economies. But, as major diamond producers such as De Beers have cut production, resulting in low availability of the raw material in the market, the buyers have to pay more.

In the beginning of November, Diamond Trading Company (DTC), distribution arm of the world’s leading producer De Beers, raised prices of various types of roughs by 5-10 per cent. Since March this year, the prices of roughs from here have been raised by 25-30 per cent.

Other diamond producers, including BHP, are also raising prices, anticipating an improvement in demand. Overall sale of rough diamonds by these mines to Indian processors, till date, is not more than 60 per cent of last year’s level. The improvement in prices has other implications for processors, as polished diamond prices have not gained much in comparison to the rough prices, and hence they are feeling a pressure on margins.

Market discounts prevailing in prices of polished diamonds have reduced in recent weeks, indicating that the spurt in rough diamond prices might soon get reflected in polished diamonds.

Diamantaires, or cutting and polishing units, are concerned over the consistent hike in rough diamond prices, as it would affect the process of revival and production of cut and polished diamonds.

“The constant surge in rough diamond prices is a matter of concern for the processing industry. Diamond cutting and polishing units in Surat have no control over the pricing of roughs. At the same time, they have their own limitations in raising prices of polished diamonds,” said Rohit Mehta, president, Surat Diamond Association (SDA).

SDA has seen demand improving in domestic and emerging markets such as Hong Kong, China and the UAE.

“The price hike is likely to impact the volumes in the industry. The improvement would be lower than what we had expected. Similarly, they may have to reduce the production of cut and polished diamonds,” added Mehta.

Diamond units in Surat are surviving by squeezing their margins. Around 2,500 to 3,000 cutting and polishing units were operational in Surat before recession hit the industry. In the wake of financial turmoil, only 1,000 units resumed operations after Diwali last year. However, 500 more units started work in April-May this year, following improvement in the demand.

“Rising prices of rough diamonds will affect those units which were contemplating re-starting their operations. We are also concerned about the proper functioning of existing units,” said CP Vanani, former SDA president.

However, industry leaders say the problems are for the short-term and polished diamond prices are set to go up.