US slowdown to keep rough rates in check

The economic slowdown in the US, the largest consumer of cut and polished jewellery, is likely to keep rough diamond prices under check this year.

Praveen Shankar Pandya, chairman of Diamond India, the only rough sourcing company in the country, feels rough diamond prices are unlikely to rise more than 5 per cent this year due to lack of US demand.

Elaborating on US demand, Pandya said, "The world's largest economy is undergoing two major strains at present "" the presidential election and economic slowdown "" which may affect demand temporarily. Therefore, demand cannot be gauged accurately on the basis of sales in the present circumstances."

Although existing long-term contracts are being executed smoothly, new orders are drying up. No fresh orders are floated for Valentine's Day or Mother's Day for instance. The Christmas season was flat as well.

Rough diamond prices were raised by an average 10 per cent by siteholders, including De Beers, BHP Billiton and Rio Tinto, recently. Another price hike, if any, is likely to dent Indian diamond processors and cutters' margin.

India's diamond industry imports roughs directly from siteholders appointed by mining companies. But, of late, a majority of domestic companies have started bidding in global auctions and tenders.

Companies such as Asian Star Company, which sources more than 60 per cent of roughs from siteholders and 40 per cent from auctions and tenders, have been paying about 10 per cent more for roughs.

"The supply of roughs is tightening now as some large mines have exhausted. New mines, under various stages of development, are expected to supply only after four-five years. Therefore, the supply of rough will continue to remain constrained," said Vipil Shah, CEO and MD of Asian Star Company, a Rs 1,500 crore diamond processing and jewellery making company.

The US is the largest consumer of diamond jewellery while India is the largest processor of roughs.

According to industry claims, India accounts for 99 of every 100 diamonds processed around the world. However, if Indian companies continue to shift processing operations abroad, the country will soon lose its market share to other mining countries.