And the Oscar Goes to… India!
March 11, 10 by Chaim Even-Zohar
During a recent trip to India, I realized something: from all the cutting and trading centers in the world, India has been the most successful in turning the economic and financial crisis into a great opportunity. If one views an interim balance of the global diamond picture, then India handsomely wins the Oscar. As odd as it may sound, 2009 was probably the best year in a decade for India’s diamond industry. Moreover, the county has also reached a far higher plateau from which to take off in the post-crisis period.
Let’s look at some facts: In terms of polished diamond exports, India’s $15.16 billion in 2009 was only 1.7 percent below the $15.42 billion of the 2008 calendar year. Measured in polished carats, the volume of exports was actually up some 13 percent, reaching a staggering 51.9 million carats.
I am not naïve and am aware of the various financial manipulation schemes that characterize part of the industry. Therefore, one must approach these figures with caution and some skepticism. The tremendous jump in carats would most likely be associated with Marange supplies, something that would have stopped around November 2009 when official rough exports from Zimbabwe were suspended. What counts is the trend. This was undoubtedly a good year for Indian exports.
Gains in the U.S. Market
To play it safe, we analyzed polished imports into the United States, which is the most important market to the world and to India. It is here that the positive figures are being vindicated. Measured by value, the U.S. imported 34 percent fewer diamonds than in 2008. Its total gross imports came to $12.4 billion as compared to $18.9 billion in 2008.
Traditionally, Israel, India and Belgium are responsible for 90 percent of U.S. imports. All other sources are really insignificant. By looking at the comparative positions of these three major competitors, we see that imports from Israel declined by 41 percent, from Belgium by 30 percent, and from India, only by 21 percent. India clearly was able to stem the declines and weather the storm better than others.
In terms of market share – and, again, we are talking value not volume – India rose from the 20 percent level that it has held for most of this decade to 25 percent. In absolute terms, in one year, India increased its market share by 25 percent. That is phenomenal; it virtually all came at the expense of Israel.
Israel held a 53 percent market share in 2005, gradually sliding down to 49 percent by 2008, and falling further to 45 percent in 2009. Meanwhile, Belgium’s share remains incredibly stable, without visible shocks. Its market share in the U.S. continues to hover between 17 and 18 percent. From the figures, it is clear that India’s gain is mostly Israel’s loss.
Same Story in Japan
We see that India’s stellar performance had an even more profound impact on the Japanese market. In 2009, Japan imported $619.2 million worth of polished diamonds at an average price of $285.80 per carat. This is a decline of 19.7 percent over the $726.6 million of 2008, when the average per carat price was $343. Measured in carats, Japan’s imports declined by only 3.5 percent as it simply shifted to buying cheaper goods.
Looking at suppliers’ market position in Japan, India now supplies 38.8 percent of Japan’s polished diamond imports, followed by Belgium with 22.3 percent and Israel with a mere 9.7 percent.
What is really significant are the steep “falls” in the crisis year. Belgium supplied 35.8 percent less, Israel supplied 38.3 percent less and India stemmed its fall to only 10.4 percent.
One may argue that it is only natural that in an economic recession consumers (and retailers) downgrade their purchases and go for cheaper diamonds. This, however, is only one of many reasons. The high price of gold works decidedly against the diamond industry when retailers struggle to maintain their price points and are forced to source cheaper diamonds.
The Key is Financing
Leaders within the Israel Diamond Manufacturers Association (IsDMA) provide a different reasoning. They point to the very restrictive attitude of the Israeli banks during the crisis. Credit facilities were enormously reduced, while little new money was made available when the markets turned around.
To quote a major manufacturer, “their [the banks’] tremendous pressure to cover themselves with additional collateral has forced distress sales at low prices; but when there were opportunities to be made to replenish at lower rough prices, the money wasn’t there. The Israeli industry as a whole has gone back by almost a decade.”
In some banks, diamonds physically held as collateral in the bank may have represented 15-20 percent of the bank’s total exposure. You cannot really sell when you need to invite your client to the bank to inspect the goods!
As with many things, the situation represents a mixed bag. One factor may weigh differently than another. But from a financing perspective, nowhere did the money continue to flow as easily and as abundantly as in India. This has proven to constitute a tremendous competitive advantage.
True, on a global scale, India (and Indian banks) was far less impacted by the financial crisis than most other countries. Nevertheless, the country’s diamond industry enjoyed extremely supportive government policies backed by an equally supportive (mostly government-owned) banking system. For instance, in India, the repatriation periods for the industry’s accounts receivables were lengthened.
More banks were encouraged to support more players within the industry, especially the smaller ones. In contrast, in Israel and Belgium, while there was ample talk about government assistance to the industry focusing on loan guarantees, basically nothing materialized.
It’s too early to draw final conclusions. As I said earlier, it’s only an interim balance sheet. But it is clear that strong government and banking support can make a substantial difference. At the end of the day, the increased market share captured in the large traditional markets is the result of business acumen of the Indian entrepreneurs.
Diamond buyers tend to be conservative and loyal. It will be a very challenging task for other centers, especially Israel, to recapture their lost clients. Those who believe that after the crisis we will all go back to “business as usual” are living an illusion. In the diamond business, tomorrow’s “new normal” translates into one word: India.
Have a nice weekend.
PS - In a previous column, we noted that goods submitted to GIA in Mumbai the may be grades elsewhere, and that one cannot jump to the conclusion that the GIA in India gives “upgrades.”
One of the world’s largest manufacturers disagreed. To prove his case, he sent 20 stones (rounds in the 0.55ct – 0.80ct range) for grading in Mumbai and then submitted the very same 20 stones to GIA in New York as well. In almost half of the grading results there were differences. When these differences were measured against the Rapaport Price List, the India-graded stones provided a full 5 percent higher value. Another Indian “advantage”?