(Minews) - Entrepreneurs in Surat in the state of Gujarat have in recent years seized business from traditional cutting and polishing centres such as Antwerp and Tel Aviv to become a crucial part of the global market for polished diamonds, which reported sales of $25bn in 2013.
Some 14 of every 15 diamonds set in jewellery around the world are processed in India, according to government data. But a tougher market and weaker demand mean growth is stalling and Indian diamantaires say profits are dwindling.
The prices at which they buy rough diamonds have become more volatile, while the global economic slowdown has damped buyers’ ardour to pay top prices for polished stones.
“Sustaining growth is a challenge as an industry,” says Parag Shah, executive director at K Girdharlal, a diamond group that employs 2,400 people in Surat.
Martin Rapaport, whose Rapaport Group publishes prices for the industry, has warned that India’s diamond manufacturers are under “unacceptable stress”, cutting output dramatically in recent months as price pressures rise.
Rapaport estimates that the price of a one-carat diamond has dropped from highs of $13,394 in July 2011 to $9,388. The price of rough diamonds has also fallen — the Rapaport rough diamond index, which takes into account different sizes and purities of stones, dropped from 170 to 141 over the same period.
“It is a survival of the fittest,” says Hitesh Shah of Venus Jewel, which specialises in high-end solitaires. He estimates that Surat’s diamantaires have seen output drop by up to 35 per cent year-on-year in value terms over the past five months.
“The companies that aren’t efficient, who don’t have a significant value added role, they have to work to get it or they are going out of business.”
Shares in Gitanjali Gems, one of India’s largest listed jewellers, have halved in value since mid-May, hit further by the recent increase in import duties on gold.
Intense competition in cutting and polishing is adding to the industry’s woes, as entrepreneurial Gujarati businessmen have piled into the trade.
Polishing capacity exceeds demand, says Mehul Choksi, chairman of Gitanjali. “There are too many of them.”
The Indian industry originally grew on the back of cheap labour, which made it profitable to process small diamonds. It remains the lowest-cost location for the industry at $10 to $50 per carat, according to 2013 De Beers data.
“Cost is just one of the factors but our people are excellent in doing quality work,” says Sevantilal Shah, founder of Venus. “Particularly in expensive diamonds, the labour cost doesn’t make a big difference.”
Searching for growth, many processors have invested in cutting-edge technology that improves efficiency — including high-tech computers that map rough diamonds and plan how best to cut the stone.
Some groups are branching out into manufacturing and retailing jewellery, looking to compete with the likes of De Beers’ Forevermark brand and Hong Kong-based Chow Tai Fook, the world’s biggest listed jeweller.
Manufacture and retail account for more than 70 per cent of the total value added in transforming a rough diamond into finished jewellery, while cutting and polishing comprises 8 per cent, according to estimates from the United Nations Development Programme.
Brands such as Gitanjali have made the transition, but many of the families that dominate the trade remain wary.
“I don’t believe that because you are a clever diamond dealer [or] a diamond polisher, it means that you are a great jewellery manufacturer and that you are a fantastic retailer,” says Russell Mehta, managing director at Rosy Blue, a diamond group that sells jewellery through its brand Orra.
Since Narendra Modi took the reins in New Delhi last year, Surat’s diamantaires have also been hopeful the prime minister will support the industry in his home state of Gujarat.
The industry is a valuable source of foreign exchange for India, with exports worth $19.6bn in the past financial year, according to India’s Gem Jewellery Export Promotion Council. This compares with $8.1bn of gold jewellery exports.
The industry received a boost in December, when Russia’s state-controlled miner, Alrosa, during Russian president Vladimir Putin’s state visit, signed deals to deliver stones directly to Indian buyers.
“Our prime minister understands this industry,” Mr Mehta adds. “Hopefully he will have more confidence and more trust in the community.”
