In­dia cash cri­sis hits global diamond in­dus­try Stone-cut­ting in the throes as Modi move throws crafts­men out of job

Kuwait Times - - BUSINESS -

The global diamond in­dus­try is fac­ing dis­rup­tion that could stretch through the first few months of next year, in­clud­ing Valen­tine's Day in Fe­bru­ary, as a re­sult of Indian Prime Min­is­ter Naren­dra Modi's rad­i­cal move to abol­ish most of the na­tion's cash overnight.

In the west­ern Indian city of Su­rat crafts­men usu­ally spend 10-12 hours a day in small mills or grimy sheds cut­ting and pol­ish­ing 80 per­cent of the world's di­a­monds but the busi­ness is based on cash and the de­mon­e­ti­za­tion of the high-value ban­knotes from Nov. 8 has pre­vented many from op­er­at­ing. Thou­sands of diamond bro­kers in the area's nar­row lanes are also do­ing lit­tle busi­ness.

The lack of cash is not the only prob­lem for an in­dus­try that em­ploys 1 mil­lion peo­ple in In­dia, most of them in this city. Modi's shock treat­ment is in­tended to make it much more dif­fi­cult for those laun­der­ing ill-got­ten gains or evad­ing taxes, and that means diamond buy­ers are demanding proof of tax pay­ments that are of­ten not avail­able, the traders said.

Top diamond min­ers, such as An­glo Amer­i­can-owned De Beers and smaller Cana­dian pro­duc­ers such as Stornoway Diamond and Do­min­ion Diamond are see­ing weaker de­mand and prices for cheaper stones used in lower-priced jew­ellery.

The pic­ture for re­tail­ers and con­sumers of di­a­monds is less clear. The cash crunch has also badly hurt con­sumer de­mand for diamond jew­ellery in In­dia, the world's third-big­gest mar­ket. That means there are more of the cheaper fin­ished stones to ex­port, help­ing to cre­ate a tem­po­rary glut and lower prices at whole­saler and store level. How­ever, that may not last if the cut­ters and pol­ish­ers of In­dia can't get back to work soon.

But the lux­ury buyer doesn't have to worry. Much of the higher-value jew­ellery busi­ness, with the high­est grade onecarat stones usu­ally cost­ing more than $14,500, is pro­tected be­cause cut­ting and pol­ish­ing is also done in Is­rael, Bel­gium and by big­ger Indian com­pa­nies that rely on bank trans­ac­tions.

"The knock-on ef­fect of Indian de­mon­e­ti­za­tion has meant a re­duc­tion in the prices of lower qual­ity di­a­monds," said To­bias Kor­mind, manag­ing di­rec­tor of 77 Di­a­monds, an on­line jew­ellery re­tailer based in Lon­don. "As a re­sult, we've seen an in­crease in de­mand for those kinds of di­a­monds as our clients have snapped up these fa­vor­able deals."

In In­dia, jew­ellery de­mand typ­i­cally climbs in the win­ter months' wed­ding sea­son. But this year sales are plung­ing as nearly two-thirds of jew­ellery is usu­ally pur­chased with cash, which is in short-sup­ply. Ishu Dat­wani, owner of Mum­baibased An­mol Jew­ellers, says his sales are down nearly 70 per­cent since the gov­ern­ment scrapped the high-value notes. The de­mand is un­likely to re­vive any time soon as In­dia strug­gles to dis­pense enough new notes, in­dus­try of­fi­cials say.

"Dur­ing the cash crunch, di­a­monds are one of the last things peo­ple want to buy. At least for the next six months de­mand will re­main weak," says Praveen­shankar Pandya, head of In­dia's Gem & Jew­ellery Ex­port Pro­mo­tion Coun­cil (GJEPC).

The cri­sis hit at a time when there were plenty of stones in the re­tail pipe­line or being pro­cessed. In­dia's rough diamond im­ports be­tween April and Novem­ber jumped 30.5 per­cent, while ex­ports of cut and pol­ished di­a­monds dur­ing the pe­riod rose 12.2 per­cent, GJEPC data shows. Diamond pro­ces­sors bought rough di­a­monds ag­gres­sively, ex­pect­ing a jump in ex­ports and ris­ing Indian de­mand, but now they are strug­gling, said trader Dharmesh Navadiya. In trad­ing hubs like Hong Kong, many re­tail­ers are stuck hold­ing di­a­monds they bought three years back at higher prices ex­pect­ing ro­bust de­mand from China that didn't ma­te­ri­al­ize.

"There has been no sup­ply crunch as the mar­ket is al­ready flooded, es­pe­cially the low carat diamond," said Jonathan Rot­bart, a dis­trib­u­tor of gems in Hong Kong.

Shock to the mar­ket

"The mar­ket is frozen. We don't have cash to buy di­a­monds," said Kalpesh Savaliya, a trader for 25 years who was sit­ting cross-legged on a mat­tress be­hind a low wooden desk in Su­rat. As small op­er­a­tors close, In­dia's rough diamond im­ports could de­cline by up to 25 per­cent be­tween De­cem­ber and March, said Me­hul Choksi, chair­man of Gi­tan­jali Gems, In­dia's big­gest diamond jew­eller.

Min­ers are al­ready feel­ing the pain with some lower-qual­ity stones being dis­counted by more than 25 per­cent from prices be­fore de­mon­e­ti­za­tion, said Pan­mure Gor­don an­a­lyst Kieron Hodg­son, in a re­cent note to clients. In its fi­nal 2016 ten­der, De Beers said sales were af­fected by a slow­down in lower-value rough stones, a trend Hodg­son ex­pects to see re­peated for at least the next three months.

Do­min­ion Diamond, with stakes in two Cana­dian mines, ex­pects its sales in its fourth quar­ter end­ing Jan. 31 will be hurt by the Indian cash cri­sis, and sees weaker de­mand for small stones ex­tend­ing to its fis­cal first quar­ter. De­mon­e­ti­za­tion was a "shock to the mar­ket," said Chief Ex­ec­u­tive Bren­dan Bell. Stornoway, which this year fin­ished build­ing Que­bec's first diamond mine, with­drew smaller, lower-qual­ity stones from its first-ever ten­der in Novem­ber due to poor de­mand and prices.

But Moun­tain Prov­ince Di­a­monds, which owns 49 per­cent of Canada's new­est diamond mine, Gah­cho Kue, in­di­cated it isn't overly wor­ried. "Small di­a­monds are roughly 80 per­cent of your pro­duc­tion and 20 per­cent of your rev­enue - and the de­mand for the large di­a­monds re­mains ro­bust," said CEO Pa­trick Evans. "The diamond mar­ket is fine. Av­er­age prices are up 7 to 9 per­cent this year, but small di­a­monds are down about 50 per­cent." — Reuters

HONG KONG: A man walks past a mo­saic mu­ral at the whole­sale fruit mar­ket in the Yau Ma Tei district of Hong Kong yesterday. — AFP

An Indian crafts­man works on a piece of diamond at a mill in Su­rat.

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