Asian demand for diamonds set to boom

India's diamond exports crashed by more than 44% in May as compared to a year ago period, sparking off panic in the diamond cutting and polishing industry. Though imports of rough diamonds also fell 20% in May, the country's rough diamond imports had jumped 20.3% the month before, in April.
The ``unexpected increase'' in April came under intense scrutiny from government officials, especially since the polished diamond trade was flat at that time. Diamantaires told the visiting regulatory officials that demand for diamonds in India and China is set to far outpace supply, which is limited to production at a small number of mines worldwide.
"The demand for diamonds is set to boom. There is no doubt about this. It will be driven primarily by the growth of the markets in China and India,'' said Maneesh Dhukaje from Hare Krishna Exports, a diamond trading firm.
In India alone, he noted, the market for diamonds is expected to grow faster than that for gold over the next five years, with some estimates pegging it at 1 trillion rupees. During the same time, India and China are expected to represent half the global growth in demand for diamonds.
Meanwhile, at the Hong Kong Jewellery and Gem Fair that concluded last week, some strain was evident in the business community, with most Indian dealers speaking about the external factors that had influenced the market. Traders also referred to the `silence' from the US market, which remains the biggest market for diamond jewellery in the world.
However, demand for light-weight diamond jewellery by China and India's rapidly expanding middle class consumers could counterbalance the expected drop in demand from key markets, traders added.
Consulting firms also have predicted that prices of rough diamonds are set to rise between 3% and 10% due to demand from emerging markets like China, India, Hong Kong and UAE, given the gradual decrease in global production of rough diamonds.
Traders said demand for diamonds is on the rise in India with the affluent class wearing more of them as a style statement and the middle class consumer shifting to the 16-18 carat gold diamond studded jewellery style that is most preferred in the major metros.
Diamond jewellery with low carat gold also appears to have found pride of place in smaller areas and districts of India, especially in Tier-II and Tier-III cities.
"People in these smaller cities are going for 14 carat diamond jewellery sets and even 12 carat sets to suit their shoe-string budgets instead of the usual 18 carat diamond studded jewellery pieces,'' said Dhukaje.
He added that the demand for diamond necklaces and bangles was especially on the rise in smaller cities.
The Indian diamond industry imports rough stones which are cut and polished within the country before they are exported. This part of the business took a major hit in May this year. According to data released by the Gems and Jewellery Export Promotion Council, exports of cut and polished diamonds fell from 51,22,000 carats in May 2011 to 25,74,000 carats in the corresponding period of this year.
In value terms, the fall in exports was from $2,240 million to $1,245 million in the same period. The decline in May was steeper than in April this year, which saw exports decline 35% in terms of value as compared to April 2011.
Diamond traders are blaming the fall in exports to the imposition of a 2% import duty on cut and polished diamonds on January 17 this year, which most traders say has resulted in a dramatic reduction. India's polished diamond exports for fiscal 2011-12 slipped by 17.3% immediately thereafter, say traders.
"At the start of January this year it was a completely different scene. Net polished diamond exports, which is the excess of exports over imports, was recorded at $828.35 million in January 2012, which was a considerable increase considering that the there was a deficit of $84.17 million in January 2011. Net rough diamond imports, which is imports less exports, also rose by 3% to $940.82 million,'' said Shashi Jariwala, diamond trader and exporter.
"Though margins are lower, cut and polished diamonds are imported for the purpose of value addition,'' he added. India imported $1.58 billion worth of roughs in April, up 8.4% as compared to March. The volume of imports also increased, up 42.2% to 14.2 million carats. The average value of imports totalled $111.41 per carat