De Beers January Sales Reason to be Optimistic?

It will take a couple more months to get a clearer indication, but on the face of it the results of De Beers' first sales cycle of the year give reason to be optimistic. Both because of the size of the sale and as a sign that the Indian diamond industry is recovering from demonetization which has been a blow to the diamond and jewelry industry in the country since it was introduced in early November.

Of course, the first sales of the new year are traditionally strong as manufacturers and traders re-stock following the holiday season. Nonetheless, the 32-percent jump on the year to $720 million at De Beers' first sales cycle of 2017 is impressive. It was also the biggest January sale for several years.

“We saw good demand across the majority of our assortment during the first sales cycle of the year, as the industry entered the period when rough diamond demand is traditionally strongest,” said De Beers CEO Bruce Cleaver in confirmation. The longer period between the final sight of 2016 and the first sight of 2017 also contributed to heightened demand during the cycle, he added.

“While the reopening of some diamond polishing operations in India saw something of an increase in demand for smaller, lower quality rough diamonds, we maintain a cautious outlook for these categories as the Indian industry continues to adjust to the post-demonetization environment,” he added.

In other words, the Indian industry is far from being out of the woods just yet. Given that the Indian diamond trade polishes close to 90 percent of the world’s rough diamonds in volume terms and is a huge trading center, it is vital that it recovers quickly from the currency reforms in November which created a cash crunch following the withdrawal from circulation of 500 rupee and 1,000 rupee notes. Those banknotes reportedly account for around 85 percent of all the notes in circulation.

Indian diamantaires appear to be slowly adjusting to a situation where owners of small manufacturing plants – of which there are thousands in India – have less liquidity. That led to a much slower return to work following the Diwali holiday as units stayed closed because of their inability to purchase diamonds.

What is the outlook for the coming months? According to one Indian company executive, the global industry shouldn't expect any quick developments. "We are slowly adjusting, but it has to be realized that this [demonetization] was a massive move. It's difficult to understate the impact it had on smaller and medium-size firms which are the majority of the industry. The government should have given business longer to adjust, but it didn't want to give advance warning. From their point of view, it's understandable, but from where we sit it has made the situation very difficult."