The Indian Budget 1996-97 The Indian Economy Overview

IN DEPTH: Indian Diamond Industry

Indian Diamond Trade watches De Beers - Argyle battle

The snapping of links between Australian diamond producer Argyle and the South African conglomerate De Beers has shaken up the US$ 4 billion Indian diamond industry which feels it is going to be caught right in the middle of an international war.


The Indian diamond trade has good cause to worry: over 40 percent of De Beers exports to India, accounting for nearly $400 million , are composed of Argyle roughs and more than half of India’s 5500 diamond manufacturers depend on this business for their livelihood. They fear that oversupply of diamonds in the market could kill their business and they are waiting for a positive signal from De Beers.

That has not yet come and the Indian diamond trade, which cuts the highest amount of small diamonds in the world, is getting increasingly restive at De Beers’ attitude. While senior officials of Argyle rushed to India earlier this month to reassure their key clients, De Beers has not done the same, preferring to wait till the next annual meeting with the Indian manufacturers scheduled in October. This is in contrast to a previous occasion last year when De Beers officials rushed to India when it appeared that Indian traders were planning to visit Russia to establish direct links with sellers.

Argyle’s attempts to soothe their Indian clients reflect the importance the company attaches to this country. Argyle roughs are difficult to cut and require a lot of skilled workmanship, something that is available in India in abundance --Trade sources say that if it was not for Indian cutters, these diamonds would be fit only for industrial use and a whole new market has cropped up over the past decade in small diamonds. If the Australian company plans to sell directly into India, it has to keep the trade here on the right side. Indeed, support from India could be a crucial factor in Argyle’s future survival strategy.

Argyle broke off its contract with De Beers, to whom it sells 40 million carats a year, with effect from July 1 and declared its intentions to sell directly to clients. India figures prominently in the company’s plans and its Bombay office has been overactive in recent weeks, holding meetings with clients to ensure that the relationship is not jeopardized. However, at the same time, there are rumors of Argyle diamonds flooding the market, presumably coming from the Central Selling Organization (CSO) and it is only a matter of time before prices crash. This, say traders, will be bad for the industry in the short and the long term, because Indian manufacturers are already sitting on huge amounts of inventory.

There was talk of an import ban, but in the end the trade bodies decided that the matter would be left to the individual manufacturers. But considering that many traders and manufacturers have been dealing clandestinely with Russian suppliers, there is little chance of a steady inflow of cheap Argyle diamonds slowing down. This could spell doom for the smaller traders who rely on thin margins.

The Indian diamond trade is also worried that the international diamond trade is in for a shake-up which could change the way the business is run. "First the Russians and now Argyle -- is the cartel crumbling?" traders have begun to ask and are waiting for answers.

The diamond trade in India has already been suffering due to rampant smuggling of "illicit" diamonds, which come mainly from Russia and fall outside the highly controlled De Beers cartel which releases stocks into the market carefully in order to manage prices. Large amounts of floating small diamonds, bought mainly by small traders, threaten to jeopardize the diamond business which is based on the notion that a diamond is a very rare object. De Beers has not managed to plug supplies of these smuggled diamonds.

The bigger players and sightholders have long standing relationships with De Beers and the CSO and they have offices all over the world. But in recent years, Argyle has, through its own office in India, built strong contacts with Indian manufacturers, which it intends to consolidate. It has given tremendous support to small and medium sized manufacturers and helped them export. With the US and Japanese markets for small diamonds booming , both sides need each other. De Beers too cannot afford to annoy its Indian clients but unless it takes urgent steps to restore the eroding confidence, it may find that it does not have too many supporters left.

Glossary
sightholder Direct customer or direct dealing agent, who gets access to the raw diamonds before the final buyer.




Sidharth Bhatia is a senior Indian journalist who runs a well known television program on Indian business and current affairs. A former newspaper editor and foreign correspondent, Bhatia has written for several publications in India and abroad.


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