Indian diamantaires to source own roughs, take on mining giants
In a bid to augment profits and cut out the role of the middleman in the diamond business, diamonds traders have decided to team up and form a new company to source roughs directly.
Author: Shivom Seth
Posted: Wednesday , 18 Aug 2010
MUMBAI -
Mining majors and diamond suppliers like De Beers, Alrosa, Rio Tinto and BHP Billiton, who supply the bulk of rough diamonds to Indian diamond traders, are in for a rude shock. Indian diamantaires in Surat, Gujarat, have decided to team up and form a company to source rough stones directly from the mines in Africa, Russia, Canada and Australia, in a move that would challenge the might of global rough stone suppliers.Not only would this ensure a major boost to the direct sourcing of rough diamonds, the formation of Surat Diamond Sourcing (India) Limited has been termed the first such collective step by the diamond industry, to tackle the problem of irregular supply and volatile prices.
Surat in Gujarat, has developed into the world's largest diamond manufacturing hub, and boasts of a global output estimated to be 90% of polished diamonds in the world, which is 55% in value terms.
In March this year, three local diamond manufacturers, Rosy Blue, Diamond India and Ratilal Becharlal and Sons inked deals totalling $490 million with Alrosa, Russia's largest diamond miner, for the supply of rough diamonds over a three-year period. In 2009, Alrosa's sales to Indian diamond manufacturers amounted to over $500 million, equivalent to half of the company's export sales. Though some traders are already directly sourcing roughs from the miners, the formation of the new company is set to ensure that even the smallest trader stands to benefit.Rohit Mehta, vice-president of the Gujarat Chamber of Commerce and Industry, told mediapersons that the new company aimed to generate business worth $2 billion.
``The main aim is to acquire rough diamonds globally from all the available mines,'' Mehta said, ``and sell them at an auction in Surat''. The move will also ensure that members would be saved the hassle of going to Antwerp (Belgium), the world's hub for sourcing rough stones.``We will sell the rough diamonds in the open market and whatever profit is earned, it will go to the shareholders,'' said Mehta, who is associated with the newly-formed company. He added that the firm is likely to become operational within ``the next 2-3 months.''
The new firm has already initiated the next step - teamed up with Mumbai traders. ``Despite Surat being a hub of diamond polishing and cutting, most of the traders have to rely on Antwerp and Dubai for sourcing roughs. In several cases, traders have complained of being cheated by brokers. Mumbai traders also have a similar problem, which becomes persistent when there is a shortage of roughs in the global markets,'' said chairman of Bluestar Diamond, Asit Mehta.
He added that big diamond companies like Blue Star, Venus Jewels and Lakshmi Diamonds have decided to participate in the venture, with others set to follow suit. Half of the roughs procured by the company will be reserved for its shareholders.
Kanha Shah of K Girdharlal and Sons, a diamond exporting firm, said that Surat's good standing with the miners across the world would help the company source roughs in a big way. ``As a group of manufacturers, coupled with our expertise and competitive advantage, we will be able to convince each and every miner to have us as a preferred client,'' Shah added.
Though De Beers, Alrosa, Rio Tinto and BHP Billiton account for around 70%-75% of the world's rough supplies, sources of the remaining 25%-30% are largely scattered. This is where the new company would be effective.
It may be recalled that the Indian diamond industry has been experiencing shortage of roughs. Hit by the 18-month recession, the 4,500 units in Surat, India's diamond city, were forced to reduce their inventory and order roughs according to the demand.
With diamond processing units coming up in China and a few countries in the Middle East, competition has also been getting tough. This has also led to a short supply of rough stones.
Incidentally, De Beers reported 133% increase in production across its operations to 15.4 million carats in the first half of the calendar year 2010, up from 6.6 million carats during the same period last year.
Moreover, India's diamond exports have also risen during the same time. India's polished diamond exports were up 11% at $13.8 billion from the corresponding period of the previous fiscal. Polished diamond imports increased 15.5% to $8.5 billion.
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