A fall of 10 per cent in the prices of rough diamonds drove demand for jewellery in the June-July period so far. This follows consumers refraining from buying diamond-studded ornaments in the March-May period, with lower purity levels of gold, primarily for long-term investment. During this period, jewellery sales were almost stagnant, owing to few auspicious occasions.
According to Mehul Choksi, chairman and managing director of Gitanjali Group, India's largest diamond jewellery manufacturer and retail brand, jewellery sales in June rose 25 per cent by volume and 40 per cent by value. Average prices of rough diamonds fell 10 per cent in June, he said.
While diamond jewellery manufacturers and retailers, including Gitanjali Gems, have offered discounts of up to 55 per cent in the monsoon season, apart from a 7.5 per cent special discount to dedicated customers, gold jewellery players waived up to 50 per cent of making charges to boost sales. The strategy has worked out well.
Gold prices continued to move within a consolidation range of $1,540-1,640 an ounce in London, resulting in a range of Rs 29,200-30,000 per 10 grammes in India during the last few months, owing to the rupee's depreciation. Consumers availed of the decline of about 10 per cent in rough diamond prices in June and invested heavily, amid expectations of an upward revision in gold and diamond prices. Consumers favoured hallmarked ornaments made from 22-carat gold, about Rs 100 per gramme lower than the price of pure gold.
The rupee, which weakened 15 per cent in the last quarter, hit the industry in India, making diamond imports more expensive and hurting diamantaires with dollar debts.
Gold is purchased as a hedge against inflation---its prices rise as the global economy faces a possible downturn. Since the Euro zone continued to remain under pressure, any further squeeze in the monetary scenario may support the precious metal positively. In June-July, wary investors continued investing in gold to protect investments from a possible price rise, said a senior official with a large jewellery manufacturing company.
Choksi said Indian jewellery processors booked rough diamonds worth $350-400 million from Zimbabwe, as a number of mines in the African country secured Kimberley Process certifications. Purchases by India account for about 50 per cent of Zimbabwe's total export of rough supplies. With global demand expected to be restored in the second half this year, overall supply is likely to rise. Overall supply from Zimbabwe was lower than expected, as the US continued its ban on the import of jewellery made out of Zimbabwean rough diamonds, earlier categorised as 'blood diamonds'.
Meanwhile, De Beers' Diamond Trading Company (DTC) is falling short of its predicted $500-million sales, recording sales of $450 million during the first half this year. The company allowed sightholders to defer estimated rough diamond purchases of $100 million in June, and this is likely to be extended to July.
According to RBC Capital Markets analyst Des Kilalea, in June, DTC even allowed sightholders to defer up to 50 per cent of purchases. Sightholders are contractually allowed to defer purchases until the next sight, but De Beers has allowed the rollover to March next year. The concern from a short-term perspective, however, is the industry may struggle to incorporate fresh goods, the deferrals notwithstanding. Also, rough diamond sales usually rise in the second half of the financial year, as Thanksgiving, Christmas, and the wedding season in India kick in.
Rajiv Jain, chairman of the Gems and Jewellery Export Promotion Council said, "Jewellery sales were certainly up in June, and the trend continued in July as well.
Polished diamond prices were generally flat in June, inching up just 0.2 per cent compared to May. In June, prices edged up before the Las Vegas shows, only to decline, as these did not meet wholesalers' expectations."
Choksi said gold imports declined 40 per cent in the quarter ended June, as the government discouraged import of the metal. According to Prithviraj Kothari, president of the Bombay Bullion Association, gold imports in the January-June period were estimated at about 250 tonnes, which is likely to rise to 300 tonnes in the second half.