The diamond-manufacturing sector is in a contradictory situation heading into the important last two months of the year. Polishing factories normally shut for an extended period during Diwali when the market is slow. However, this year, companies had already reduced their production significantly in response to the slowdown in demand. While the sector has remained weak, these policies have eased the pressure on them to implement long vacations over the Indian festival season, which this year began last Wednesday.
Manufacturers in Surat switched off their cutting wheels in the last few days and will remain shut for three to four weeks, executives estimated. Some will open earlier or later, depending on needs. Sales and marketing offices in Mumbai will close for a week to 10 days.
Last year, by comparison, factories paused operations for up to two months. Diwali coincided with a two-month voluntary moratorium on rough imports into India.
Trade statistics point to a continued stabilization of inventory. While India’s gross polished exports fell 23% year on year to $1.29 billion in September, rough imports fell 25% to $779 million, recent data from the country’s Gem & Jewellery Export Promotion Council (GJEPC) showed. Net imports of rough and polished after returns of consignment goods — a loose indicator of India’s inventory buildup — was relatively low at $152 million for the month, albeit up from $13 million in August.
As explained in a recent video, you can subtract around $100 million to $150 million of this on a monthly basis because of domestic Indian demand. This means inventory appears to have dropped in August. The numbers point to stable inventory levels — or a slight increase — in September, based on the same method of calculation.
Manufacturers displayed a mixture of caution and optimism as they entered Diwali. They noted shortages of a few sought-after items, such as nicer VS- to SI-clarity diamonds, which they expected to intensify over the festival. Production will pause for longer than sales, while online transactions will continue even when workers are putting their feet up.
However, inventory is “lopsided,” said one manufacturer, as there are still many categories for which inventory is high relative to demand.
“We still don’t have the normal rough supply coming in,” he said. “People are getting rid of excess inventory. It’s going to be a very funny market come January or February. Some goods [will] be very difficult to find, and some goods for which there are no buyers.”
The lower production, and not demand, is the cause of the moderate stabilization and anticipated post-Diwali shortages, according to traders.
The market for 2-carat, D to G, VS to SI diamonds has improved, one of them observed.
“After Diwali, there will be some shortages in certain areas,” he said. “[However,] people are not going to manufacture more, because there is not much positivity.”
Image: Diamond manufacturing in Surat, India. (Shutterstock)
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