India Gets Tough on Rough
With the global credit crunch affecting financing of the diamond and jewelry industry, India’s Gem & Jewellery Export Promotion Council has asked the diamond industry in India to stop importing diamond rough for one month, beginning on November 25. GJEPC, the apex body of India’s industry, has 6,500 members, including all of India’s major diamond and jewelry exporters.
In a statement on Friday, the GJEPC explained its action as a defensive move to protect the interests of the industry: “This will also send signal to the banking system that the diamond industry will not increase its indebtedness at the time when our downstream colleagues continue to meet consumer demand, a demand heightened by the inherent value which consumers attach to our product.”
The move has support in India and in the diamond manufacturing industry worldwide. At the Antwerp Diamond Symposium on Monday, Moti Ganz, President of the International Diamond Manufacturing Association, called the GJEPC’s move “a brave and important step.” World Federation of Diamond Bourses President Avi Paz also called for miners to decrease production and manufacturers to reduce buying in his speech in Antwerp.
The rough import ban will essentially shift the credit pressure upstream to the mining companies. If India’s large diamond manufacturers respect the ban, they will have to cancel or delay commitments to buy rough from producers. As Vasant Mehta, the Chairman of GJEPC puts it, “Our move will basically cause fewer rough to enter the diamond pipeline and the producer companies will thus indirectly share in the financing burden and contribute to a faster restoration of normalcy in an otherwise healthy business.”
Adhering to the ban would prevent DTC sightholders and Rio Tinto Select Diamantaires from accepting December rough allocations. There is a DTC sight scheduled from December 8-12.
“If customers of the producers take goods at the next sale, they will not go against the trade and send it here. We can not control or monitor it, but I believe everybody is unified in this,” Sanjay Kothari, the past chairman of the GJEPC told PolishedPrices.com.
As you might expect, diamond producers aren’t wild about the idea. “As we announced at the last Sight, De Beers is fully prepared to reduce production to reflect the prevailing level of demand for new rough diamond supply from our clients,” says Lynette Gould, De Beers Group Media Relations Manager. “We do, however, believe that our clients are best placed to decide upon their short-term rough diamond requirements and, as a result, the ‘blanket ban,’ between the 25th of November and the 30th of December is an unnecessarily blunt remedy.”
“The health and dynamism of the Indian diamond industry is important to Rio Tinto,” says Jean-Marc Lieberherr, Rio Tinto’s General Manager of Diamond Sales and Marketing. “We have had a long and mutually beneficial association and we remain as committed as ever to this relationship. Our approach continues to be to work very closely with our Indian and non-Indian customers to find together the best way forward, in the spirit of partnership. We have great confidence in the future of the industry and in the inherent value of our product, and as we face short term challenges, we also all have an opportunity to build a stronger business together.”
The measure also may be criticized for decreasing employment in India. In addition to further weakening companies that do not have enough rough stockpiled to keep operating during the month, the ban is also like to affect many of the hundreds of thousands of people employed in India’s gem and jewelry industry. Even before the import freeze, Surat layoffs have been estimated at 50,000 cutters. Many diamond cutting factories that closed for Diwali in mid-October have remained closed and are likely to stay that way through the end of the year.
Mehta says that many factories should be able to continue operations during the month. “Our members have sufficient rough diamonds in stock to minimize the impact on our labor force,” Mehta says.