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Lower sales creates stockpile of diamonds in India

Posted by: Editor
Date: 9/6/2017

The Economic Times of India reports a diamond stockpile  forming due to lower than expected sales volumes:

A slowdown in demand from the US for polished diamonds is gradually building up inventories at Indian jewellery manufacturing units, leading to a decline in stone prices by as much as 7 per cent in the past one month. The US usually starts raising bulk orders around this time of the year for the Fallwinter holiday season, but this year the volumes are missing.

"Inventories have started piling up at the manufacturing units. It will become a matter of worry if this continues for long. However, we are now pinning hopes on the upcoming Hong Kong Gem & Jewellery Fair," said Vipul Shah, former chairman, Gem & Jewellery Export Promotion Council (GJEPC). The fair is going to be held between Sept 13 and 17, and traders are betting on it for a revival in export orders.

Ashok Gajera, managing director, Laxmi Diamond said, "Generally, we have four months of inventory with us. But now it is the equivalent of about five and a half months.We are trying to find out why US sales are stagnating. Trade sources say that millennials are not picking up diamonds the way they should have been."

Even the diamond markets in Belgium and Israel are quiet. Rough diamond trading has also slowed. Internationally, prices have dropped by 7-8 per cent in the last one month. Liquidity concerns are now weighing as profit margins tighten," said Gajera.

To be sure, the polishing centres in Surat and the Saurashtra region in Gujarat are yet to see the impact of this slowdown.

Dinesh Navadiya, president of Surat Diamond Association said: "We do not expect manufacturing activities to be cut down due to this slowdown in export markets. What may happen is that diamond manufacturing companies may reduce investment in raw materials."

In July, exports of cut and polished diamonds declined 4.4 per cent to Rs 10,614 crore, against Rs 11,098 crore in the corresponding month of 2016. The net gem and jewellery exports in July dropped 29 per cent.
Trade sources say that there has not been much recovery in August, although GJEPC is yet to publish the sales figures.

 The full article can be found here: http://economictimes.indiatimes.com/markets/commodities/news/diamond-stockpiles-add-weight-to-indian-units/articleshow/60371974.cms

Mazzal interpretation:  If the production exceeds the demand, prices are expected to go down even more. More in this case lower prices won't necessarily increase demand fast enough to get to a new balance. Rather the effect of this will be a spiral effect. Some businesses will go out of business, and that will create a decrease in production volumes. If this downward spiral continues we can expect very tough times ahead. But it is too early to tell. Maybe demand will pick up. 

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