Work hard and you will find success

Eduard Utkin, Director General of the “Jewellers’ Guild of Russia” Association, expert of the RF Chamber of Commerce and Industry’s Committee on Precious Metals and Precious Stones, told R&P about implementing the SIIS PMPS (State Integrated Information...


GOLDNET.MARKET - “We want and are working to provide business with the opportunity to develop a lot of activity areas”

Today, almost all jewellery companies have their own wholesale websites, online stores, and social media pages. But a year ago, GOLDNET.MARKET, the first jewellery wholesale marketplace appeared in Russia, a new effective tool for the jewellery market...

20 september 2021

Platinum’s rare nature gives it additional value and appeal

Huw Daniel is the CEO of Platinum Guild International, overseeing market development activities in China, Japan, India and the USA, on behalf of the platinum producers of South Africa. Before taking up this role in 2015, Huw ran PGI USA for 12 years...

13 september 2021

Marco Carniello: We want to continue to be the engine boosting the jewellery industry

Italian Exhibition Group (IEG) is a leader in Italy in the organisation of trade fairs and one of the main operators in the trade fair and conference sector at European level, with structures in Rimini and Vicenza, as well as further sites in...

06 september 2021

There is a significant need for smart and technological financial solutions in the diamond industry

MDPS, the Israeli start-up Fintech company from the Mazalit Group is gearing up to enter the diamond industry soon. Zeev Maimon, the CEO of MDPS is also the Founder / CEO of MAZALIT, a B2B payment platform designed and dedicated to the global diamond...

30 august 2021

Market report: The problems of one country have turned into a problem for the entire industry

06 august 2012

The signs of recession in the diamond market are becoming ever more visible. Philippe Mellier, CEO of De Beers, has officially announced that his company will reduce production in 2012 in line with the falling demand. De Beers has been holding back supply since the autumn of 2011 and at the last sight allowed the sightholders to defer the purchase of one half of allocated rough to a later date and also reduced prices by an average of 3%. However, it seems that De Beers can no longer afford to work accumulating stocks.

According to various experts, rough prices declined by 8-15% in the second half, but still remain too high for diamantaires experiencing a liquidity crisis. Expert circles are increasingly holding to the opinion that diamond miners should continue to cut prices. But will this measure be effective?

When we speak about "cash-strapped cutters," we mean Indian companies. India is a long-established major diamond cutting center, and it is the state of the Indian market which today has an impact on the state of the entire industry. According to the Kimberley Process (KP), the country imported 132 million carats of rough diamonds and exported 37 million carats in 2011. In other words, about 95 million carats were left in India for cutting purposes, which is more than 70% of the global diamond output.

In this environment, the most important numbers for the market are not even the quarterly reports of De Beers and ALROSA, but the statistics of the Indian Gem & Jewellery Export Promotion Council (GJEPC). And on the basis of these metrics it is possible to draw a great deal of conclusions about the state of the diamond industry and the prospects it is facing.

March 2012 was the starting point for depreciation of currencies in the BRICS countries. India felt the pressure on the local currency even stronger than the Russian ruble and Chinese yuan - by June 23 the INR/USD rate reached a record low - 57.24 rupees per one U.S. dollar, down 12% compared to March.

The work of diamond manufacturers strongly depends on the rupee rate. Rough and polished purchases are based on dollar prices. In the spring of this year, the Reserve Bank of India ordered foreign trade operators to convert half of their funds in the accounts into local currency to support domestic demand. Now the diamantaire sells a parcel of polished diamonds, converts the proceeds into rupees, and after that has to buy a new parcel of rough diamonds to go on with his work. In reverse conversion, he automatically loses some part of the newly earned money. If rough prices go up in parallel with this procedure, the next time this diamond manufacturer will be able to purchase less rough than he could afford a few months ago.

During the last two or three years it takes four months on average to sell a polished diamond from the date of its manufacture. If today manufacturers bought less rough, it means that in four months the market will get less polished. This creates a situation in which the weakening of the local currency makes difficult not only import but also export operations.

Throw in the need for interest payments on loans, which are also charged in dollars. To pay interest, the diamantaire is once again forced to convert rupees to dollars and once again incurs additional costs. According to an expert assessment of some Antwerp diamond banks and industry analysts, as of January 2012, Indian diamond dealers’ credit-based debt was no less than $8 billion. They have come close to the maximum levels of borrowing and lost the opportunity for refinancing.

The chart below compares the behavior of the rupee and polished export from India since 2008. You can see that in periods free of crisis phenomena, their movement stays roughly within one and the same trend, without diverging too far apart. The situation in 2012 resembles the picture of the crisis in 2009, when a sharp rise in the U.S. dollar rate against the Indian rupee (and an equally heavy credit burden) led to a drop in polished exports. During that crisis period, as can be seen in the chart, the situation improved with the strengthening of the rupee.

Another interesting detail is the behavior of the graphs in the second half of 2011. The sharp rise in polished exports cannot be in any way linked to the exchange rate. That is to say that in fact this rise is devoid of fundamental causes and may be explained by an influx of great amount of money into the industry.

The statistics provided by GJEPC can also give you an idea about how diamond stocks are being accumulated and spent. In this table, stocks are calculated as the difference between rough imports (with a polished yield ratio of 30%) and net polished exports.

The last decline in polished exports registered on this chart falls on March-May - during this period the market was offered polished diamonds made of rough bought in the end of 2011. As we remember, rough purchases in this period were quite poor.

The problems with the rupee, which began in March, forced manufacturers to accumulate rough in stock. Therefore, in the near future we can expect these stocks to come out to the market and, consequently, an increase in polished exports from India. There is every probability that the cycle of work performed by manufacturers will slightly contract. The main task for them now is to ensure repayment of loans, but this is only possible by maintaining steady operation. Probably, now they will seek to buy small lots of diamonds to quickly cut them, sell and then buy small quantities of rough again.

If there will be an increase in polished exports in the coming autumn, this will mean that manufacturers will have money from their sales. This is the point of temptation to start talking about the need to reduce rough prices. At a first glance the logic is very simple: This step will give a chance to diamond cutters to get more margins and overcome the crisis. But such a move is fraught with yet another danger that lies in increasing mining costs. In a previous review I mentioned how much of diamond miners’ proceeds "peter out" into costs (take, for instance, De Beers, whose costs in 2011 hit $5 billion against a revenue of about $7 billion). If rough prices will go down, miners will inevitably face the issue of commercial viability of their businesses. If diamond mining companies are even now announcing their intentions to reduce output and phase down development programs, it will lead to a further decrease in production if their cost-effectiveness will continue to fall. As a result, the market will get the same growth of rough prices due to reduced global supply.

If you look at the movement of rough and polished prices (proceeding from the same GJEPC data), you will see that on the whole price indices for rough and polished diamonds starting from 2008 are approximately consistent with each other. We took January 2010 as a starting point for this index viewing the date as a period without "perturbations" and not affected by any crisis phenomena.


In the same way as above, the difference between the graphs is observed only in the crisis period of 2008-2009 and in the second half of 2011. In 2011, as can be seen from the chart, polished prices remained on an overall upward trend, but along with this process prices for rough diamonds grew at a much faster pace than polished prices. However, since the beginning of 2012, as can be seen, the price index for rough also returned to the general trend, and currently their behavior is once again similar, as it used to be historically.

These charts indicate that the current crisis in the diamond market is not linked to differences in prices for rough and polished diamonds but to local problems in the financial market of India. Accordingly, a decrease in prices for rough diamonds may possibly relieve these symptoms but will not cure the disease. The diamond sector does not account for a large share in the GDP of India to be able to correct the macroeconomic situation in the whole country.

All that is left to the participants of the diamond market in this situation is to wait for the autumn, when it will become clear whether the measures proposed by the Reserve Bank of India give any results. These days the U.S. dollar stays at around 55.5 rupees, but it is definite that so far there has been not enough time for the situation to consolidate.

Elena Levina for Rough&Polished