Cash Crisis Casts Shadow Over Global Diamond Industry
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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 Prime Minister Narendra Modi"s move to abolish most of the nation"s cash overnight. In Surat, craftsmen usually spend 10-12 hours a day in small mills or grimy sheds cutting and polishing 80% of the world"s diamonds but the business is based on cash and the de-monetization of the high value bank notes from November has prevented many from operating. Thousands of diamond brokers in the area"s narrow lanes are also doing little business.
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Top diamond miners, such as De Beers and other smaller producers are seeing weak demand and prices for cheaper stones used in lower priced jewelery. The picture for retailers and consumers is less clear. The cash crunch has also badly hurt consumer demand for diamond jewelery 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 can"t get back to work soon. But the luxury buyer doesn"t have to worry much. Much of the higher-value jewelery business, with the highest grade one-carat stones usually costing more than $14500, is protected because cutting and polishing is also done in Israel, Belgium and by bigger Indian companies that rely on bank transactions.
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The crisis hit at a time when there were plenty of stones in the retail pipeline or being processed. “Diamond processors bought rough diamonds aggressively expecting a jump in exports and rising Indian demand, but now they are struggling” said a trader. In trading hubs like Hong Kong, many retailers are stuck holding diamonds they bought three years ago at high prices expecting robust demand from China that did not materialise. “Miners are already feeling the pain with some lower quality stones being discounted by more than 25 percent from prices before demonetization” says an analyst. 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 atleast the next three months.
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Dominian Diamond, with stakes in two Canadian mines, expects its sales in its fourth quarter ending January 31 will be hurt by the Indian cash crisis, and sees weaker demand for small stones extending to its fiscal first quarter. Patrick Evans, CEO of Mountain Province Diamonds, indicated they are not overly worried. He feels “Small diamonds are roughly 80 percent of your production and 20 percent of your revenue- and the demand for the large diamonds remains robust. Average prices are up by 7-9 percent this year, but small diamonds are down by about 50 percent”.
