Scarcity of rough diamonds to hit processors

Still struggling to overcome last year’s poor sales following economic slowdown in August 2008, the Indian diamond processing industry is faced with another problem — shortage of rough stones by 25-30 per cent.

Many jewellery makers were planning to showcase innovative designs and cuts, the two most important aspects on the basis of which products are priced, in one of the largest jewellery shows in Asia scheduled from March 5-9 in Hong Kong. But the shortage of roughs (uncut diamonds in industry parlance) has limited their scope. The participants fear their overall sales would be badly hit.

Confirming the shortage, Sanjay Kothari, ex-chairman, Gems & Jewellery Export Promotion Council (GJEPC), said India imported 30 per cent less roughs in 2009, which continued in January 2010 as well. “But this is just the beginning of the year and global economies are recovering. Demand for diamond jewellery is likely to recover in the coming months,” he added.

The show was to be a good platform to overcome the lean season (March-May) sales. Shortage of roughs and their continued month-on-month rise of price by 3-5 per cent has put a question mark on the future plans of most of the large companies.

India, the world’s largest diamond processing hub, imported roughs worth $7.5 billion in 2009 as compared to $12-13 billion in previous years, as mining companies cut their output drastically.

De Beers reported an annual production at 24.6 million carats, 49 per cent below 2008 level. Rio Tinto reported annual production cut by 33 per cent to 14.026 million carats in 2009. The two companies control over 95 per cent of the world’s rough diamond availability.

The two, along with other mining companies are also unwilling to raise output until prices reach profitability levels.

A De Beers spokesperson from London said global demand for luxury goods has not yet recovered to pre-crisis levels and it will continue to take a prudent approach to its production in 2010.

“We plan to increase production over 2009 levels, but do not expect to approach our historic highs for the foreseeable future,” she said, adding that De Beers will not produce from any operation where it is not cost-efficient.

“Damtshaa mine (part of the Debswanan group) remained closed for the whole of 2009. Mining will be suspended at Namaqualand mines in South Africa, too, from the end of the first quarter of 2010 for three years when operating costs of the mine and revenue from sales are expected to improve,” she added.

This, although De Beers has valued its sites at $550 million in January 2010, a rise from $100 million in the corresponding month last year. However, it is unlikely to reach the January 2008 record of $850 million.

After a 10-month lull, demand for diamond jewellery has been picking up from July 2009, but it is yet to achieve the level of August 2008.