Diamond prices falling; Bank credit to Indian diamond players drops drastically: Rapaport report

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A report made public by Rapaport reveals that polished-diamond prices softened in January, with 1-carat stones falling by 0.4% last month and 1.8% compared to January 2018, while 3-carat gems fell by 1.8% last month and 5.9% compared to last year.

Smaller diamonds saw a less steep decline in prices as 0.5-carat rocks fell by 0.3% in January 2019 and 0.1% when compared to last year, and 0.3-carat diamonds dropped by -0.8% in price last month and -4.1% year-on-year.

According to the firm, the reasons behind the sliding prices are that the US restocking proved slower than expected after the holiday season and the vacation that Far East buyers took ahead of the Chinese New Year. The number of diamonds on RapNet as of February 5 was 26% higher than a year ago.

Rapaport also reports that bank credit to India’s diamond trade declined by up to 30% in the past year and currently stands at $5 billion to $5.5 billion. Several situations are behind this drop, among them the fact that bankers decided to raise the industry’s risk profile following the $2 billion alleged fraud of Punjab National Bank by jewelers Nirav Modi and Gitanjali Gems.

Besides that scandal, credit-granting went down because state-owned banks are adopting a more conservative approach across all industries in response to a rise in non-performing assets in the country and, in parallel, the rupee was depreciated by 12% against the US dollar in 2018, which reduced credit in dollar terms since India’s credit lines are set in rupees.

“Indian diamantaires need to improve transparency and profitability to gain favor with the banks. A shift to a more conservative lending environment in India will exert additional pressure on the trade in 2019 but will be a positive development in the long term. With reduced bank credit, businesses will have less money to spend on non-profitable rough, helping to shift their mindset away from turnover and toward bottom-line profits,” Rapaport states.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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