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

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

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India’s ‘rough’ journey to the future...

12 may 2014

What you see as the final product, be it a polished stone or a finished piece of jewellery maybe captivating and make your heart soar. But a lot of hard work and passion has gone into creating a beautiful thing. It’s not always glamour and gaiety for the ever-growing gems and jewellery industry in India. Behind the overall extravaganza and beauty of the industry’s events like shows, fairs, jewellery weeks etc., endless work and unbelievable struggle has gone into the business, which is not usually in the forefront. The most difficult challenges faced by the industry members could well be stretched to the ‘initial days’ of the business - that is sourcing raw materials. Whether it is sourcing diamonds / precious stones (both rough and polished), metals like gold, platinum, silver etc., the problem begins at the beginning. Here, we shall restrain ourselves to do a study on ‘rough diamond’ sourcing by the Indian industry, which is as or more complex and difficult as ‘grading’ a diamond, if you will.

The Government of India has always been supportive of the gem and jewellery industry as it is a forex earning industry, though some sections of the industry may disagree on this point as they expect more. Recently, the Reserve Bank of India (RBI) liberalized the norms for rough diamond imports further by completely lifting restrictions on the number of diamond mines to whom advance remittances can be extended for roughs imports. Till now, RBI allowed importers, other than state-run entities, to make advance remittances only to Diamond Trading Company (UK), Rio Tinto (UK), BHP Billiton (Australia), ALROSA and Gokhran from Russia and Endiama EP from Angola. Now, all restrictions has been removed, which gives the industry a chance to source ‘rough’ from anywhere with ease. When asked if he felt that RBI’s liberalization of norms for rough diamond imports would ease the rough shortage situation in the Indian industry, Sanjay Shah of JB & Brothers Pvt Ltd, one of the new sightholders said, “Any import regulation which is liberalized significantly brings down the cost which directly impacts the business in a positive way. However, as mines are going deeper and deeper there would definitely be the shortage of rough throughout the industry.” The Indian diamantaires are known to look far and wide for their need of ‘rough’ to feed their cutting and polishing factories. Sanjay Shah was very positive about the growth of his company now as a sightholder. “We are foreseeing double digit growth for our company and we also procure rough from mining companies like De Beers, BHP Billiton, ALROSA, etc.,” he said.

Given the perennial reports of rough shortage in the industry and demand for rough increasing by the day, it is not surprising that the ‘starved’ Indian rough buyers grab ‘rough’ whenever and whenever they can. A few weeks ago, most of the stock of the Zimbabwean ‘roughs’ was purchased by the Indian diamond companies and traders at the tender auction, organized by the Dubai Diamond Exchange (DDE), which explains a lot about the need for more and constant supply of rough for the cutting and polishing sector here in India.

The Indian diamond industry, however, is like any other industry with its share of problems, with lending banks becoming tight-fisted due to some bad accounts. When the Government on one hand is opening out by removing restrictions, banks on the other hand are wary. The more than $28 billion worth Indian diamond industry may have a difficult phase with the banks that may drastically cut down on lending. The fact that the prices of rough diamonds are rising too fast while there is hardly upward movement in the prices of polished diamonds is something that the banks cannot fathom.

Mining companies may well do not to hike prices of ‘rough’ when the corresponding polished prices hike is difficult to achieve for the cutters and business people in general. Recently, De Beers increased rough diamond prices by three to five per cent and ALROSA too adjusted prices during its March trading session, raising prices for some categories and decreasing for others. This creates immense pressure for the business down the line up to the retailers. However, it is reported that ALROSA has kept prices basically stable at the April trading session, which may ease the situation a little as many Indian companies bid on online tenders for ALROSA’s rough diamonds. On the whole, it is estimated that rough prices have increased by approximately 7 percent to 10 percent in 2014.

India’s rough imports recorded an increase during the financial year. Imports of rough diamonds rose to US$ 15,333.37 million (1,515.86 lakh carats) for the period Apr. ‘13 – Feb.’14 from US$ 13,493.18 million (1,349.33 lakh carats) in Apr. ’12- Feb. ’13, registering a 13.64 percent rise. However, there is a marginal increase in exports of rough to US$ 1,400.20 million for Apr. ’13-Feb.’14 from US$ 1,379.57 million for the same period Apr. ’12- Feb.’13, registering a growth of 1.5 percent.

Some analysts have come to the conclusion that over the last 18 months or so, the top mining companies have deliberately adopted aggressive pricing policy and kept the prices higher for rough diamonds for a valid reason. It is believed that it was done in order to discourage ‘trading’ instead of polishing the stones... a global practice. Some Indian rough traders have also been accused of hoarding to disturb the demand supply ratio, and eventually command higher prices in the secondary markets.

With no operating diamond mines currently in India, the diamond industry is always on the lookout for mining companies anywhere in the world to source rough. The Panna Project not making any headway until today, the Indian industry would benefit if the stalled Rio Tinto Project in Bunder, Madhya Pradesh (India) could proceed further and get on with exploration work. Sanjay Shah thinks that “any diamond mine, from prospecting to production takes considerable amount of time and India being a diverse country – there would definitely be some challenges for such projects. However, looking at the kind of investment made by a company, it would be interesting to see the potential of mine over a period of time.” Sure, the Indian industry would like to as well. However, he feels that the Panna Diamond Project can still be revived albeit with a new company and says, “In olden days in absence of technology some projects may or may not have turned out as expected, however with use of latest technology a company of international capabilities may work out in a significant way.”

If it obtains clearances for mining, the Rs 2,200 crore Rio Tinto mining project would augur well for the Indian industry. The Bunder mine has potential reserves of 27.5 million carats of diamonds. The discovery of the diamondiferous kimberlitic deposit came in 2004 after nearly two decades of prospecting and is said to be globally the only significant find in over a decade. Rio claims that the deposit is seven times richer than India's only operating mine, NMDC's, about 140 km away at Majhgawan in the Panna District. The Bunder project is also important as the only new diamond project in India in nearly 50 years, and as the Anglo-Australian company's first operating mine in India.

India’s Gem and Jewellery Export Promotion Council (GJEPC) and ALROSA signed a memorandum of understanding (MoU) on 10 April 2014 in Moscow to improve trade ties and share trade and statistical data on the diamond trade between the two countries. While India seeks long-term contracts between ALROSA and the state-owned Minerals & Metals Trading Corporation (MMTC), it would be interesting to see how India (the world’s largest diamond-processing nation) and Russia (the world’s largest rough diamond producer) will take this forward, as it is a significant step towards greater ‘direct’ diamond trade.

ALROSA produced 36.9 million carats of rough diamonds in 2013. A study team from ALROSA, which visited India recently, stated that most of the rough diamonds produced in Russia are cut and polished in India. But direct imports of rough diamonds from Russia to India are modest, with the fiscal 2013 figure standing at some $767 million. Obviously, there is a possibility to work on this aspect for more direct supplies of ‘roughs’ to India. ALROSA accounts for about 25% of the world rough output, while the Indian diamond processing industry accounts for some 60% by value of global polished diamond output.

An estimated 14 out of 15 polished diamonds studded in jewellery globally are cut and polished in India. India imported 163.11 million carats of rough worth $16.34 billion and exported 36.46 million carats of polished diamonds worth $20.23 billion during the calendar year 2013. Total Indian provisional exports of gems and jewellery during the calendar year 2013 stood at $36.04 billion. Indirect routing of rough diamonds into India simply adds to cost and increases the complexity of sourcing steady raw material supplies.

Many Indian dealers already have a significant presence at the Moscow Diamond Bourse and relations between the diamond dealing communities of both nations are warm and close. Now, that the commerce ministries of both nations are engaged in sorting out these procedural matters, the Indian diamond industry is hopeful of a major increase in trade in the coming years.

The open markets, especially Antwerp and now Dubai, have been a sustenance for many a diamantaire, who may not be able to source directly from miners. In fact, all and sundry search the open market for rough goods that they need, irrespective of whether they are sightholders, contract buyers or auction bidders. The open market is a playing ground for all, and the Indians have been regulars there for decades.

During the Indian diamond industry’s infancy, the Hindustan Diamond Company Private Limited (HDC) acted as a saviour by importing and supplying rough to the industry. Later, small unit owners were supplied by this state owned company as the bigger companies sourced their own roughs. The company had since stopped importing ‘rough’ as they did not have many buyers. However, it is reported now that HDC will soon resume imports of rough, mainly to help small and medium-sized enterprises in Surat and surrounding places, who are facing problems of rough shortage. The Indian industry’s attempts to procure direct supply of rough diamonds from South Africa is also a continuous process, to keep the cutting centres going and protect the lakhs of workers employed in the cutting and polishing sector.

Aruna Gaitonde, Rough&Polished, India