Awaiting Clearer Signals from U.S., Diamond Sector Keeps Fingers Crossed

• Inventories Piling Up • Credit Gets Dearer%% Christmas is round the corner and diamond trade circles are keenly awaiting signals from the U.S. market to make some assessment of the overall business prospects there during the most important festive season. The business trend in the coming year may very much depend upon the overall sales taking place in this festive and gift giving season.

Main Trends {[Christmas Sales Eagerly Awaited ][Overseas Demand Weak ][Retail Sales in Low Key ][Downturn Again in US Economy ][Impact on Consumer Psychology ][ Factories Re-open; Rush for Rough ][ Rough Prices Stabilizing ][Exports Decline ][Bullion Up Again]}

{{Christmas Sales Eagerly Awaited:}}$$ Importance of diamond jewellery sales during the Christmas season in the U.S.A. can never be underestimated, as the US still remains the world’s largest market for diamond jewellery, accounting for nearly 50 per cent of the total global sales. Most Indian manufacturers and exporters have already dispatched their diamonds and jewellery to their clients there, on long-term credit basis. Payments for these depend upon actual Christmas sales. If these sales remain below expectations, such payments could be delayed further and might add to the present money stringency in the Indian market. Some of the firms may return unsold goods later thereby adding to the local inventories here. No clear signals are available as yet from the US market as to how Christmas sales will shape up. %%{{ Overseas Demand Weak:}}$$ While a few firms are hopeful that overseas sales during the ensuing season might be as good as in the same season a year ago, some others are not so optimistic and point out that the demand remains very slack. Foreign buyers in the market are few and far between. The usual tempo of overseas pre- Christmas demand has not been visible so far. %%{{ Retail Sales in Low Key:}}$$ One of the reasons for this situation might be that the overseas buyers – both wholesalers as well as retailers have already stocked themselves well to meet the estimated seasonal demand. However at the retail level, there is not much movement though November has already been slipping away. %% According to preliminary reports from the U.S. market; none seems to be sure as to how this season will eventually turn out. %%{{ Downturn Again in US Economy:}}$$ This uncertainty arises mainly because of the fact that the U.S. economy has been slowing down. For instance, U.S. economy displayed robust growth of 5.6 per cent for the first quarter of the current year, but it soon slowed down thereafter pulling down the GDP growth rate to 2.6 per cent for the second quarter of 2006. The outcome for the third quarter has been even more disappointing, around merely 1.6 per cent. %%{{ Impact on Consumer Psychology:}}$$ When the economy is booming it may help in boosting the psychology for making purchases. When the economic outlook does not seem rosy the consumer may either put off avoidable purchases, or be cautious about expenditure. While the number of engagements and marriages take place as usual, spending for this purpose may be reduced to some extent. Those who are usually making such purchases for the purposes of gifting, might reduce their purchases or go in for alternative items. It is difficult to predict what will be the consumer psychology at the time of Christmas shopping. That explains why most people in diamond business prefer keeping their fingers crossed currently until more reliable signals start coming in from the U.S. market.

{{Factories Re-open; Rush for Rough:}}$$ Most of the Indian diamond factories have re-opened after a brief Diwali vacation. A number of manufacturers in the meanwhile have gone to Antwerp to procure roughs. This is because the factories have to be fed with new material if they are to be kept running. Secondly, it is possible that they might not be having certain categories of rough goods and would like to manufacture such selected goods. It is generally believed that those who have gone, or likely to go to Antwerp, may be highly selective in their purchases of rough, in order to avoid addition in their inventories, which are already piling high. This is evident from the fact that the current interest rates for borrowings from non-institutional sources are as high as 15-18 per cent per annum. Those who have exhausted their credit-limits with their banks and are stuck up with unsold stocks may be forced to borrow by paying the prevailing very high rates of interest; unless they are prepared to liquidate stocks in an unreceptive market. On the whole, inventories with the manufacturers and trade are believed to be much more than normal; as only just around 40-50 per cent of polished goods manufactured find buyers, the balance has to be added to the stockpile. %%{{ Rough Prices Stabilizing:}}$$ Rough prices are tending to stabilize in the open market around lower levels. Premiums had disappeared long ago. Most varieties are available without premium. Some, which are not in demand, are being sold at discounts. Many firms are now paying more attention to the Stock Exchange or the property market than to their own business. This shows that their confidence in their own main business undertaking is shrinking. %%{{ Exports Decline:}}$$ In the first six months of 2006-07 exports of cut and polished diamonds from India have gone down 15.78 per cent in terms of value to US$ 5,278.47 million from US$ 6,267.26 million in the same period a year ago; in terms of volume, dispatches are down by 26.43 per cent at 178.41 lakh carats compared with 242.53 lakh carats in the same period last year. %%{{ Bullion Up Again:}}$$ With the softening of the US dollar, bullion is up again. In the overseas market gold was placed around US$ 620.7 per oz. and silver at US$ 12.44 per oz. on November 6, 2006. In the domestic market, the yellow metal was placed at Rs. 9,129 per 10 grammes (standard quality), while silver was transacted at Rs. 19,075 per kg.