Size Matters

A recent statement by the World Diamond Council (WDC) set off grumbling in India. The WDC clarified that Zimbabwe's Marange diamonds are not yet clear for trade and the response from Surat was a series of statements protesting the current situation.

Clearly, the "issue of Zimbabwe," should be resolved, brining Zimbabwe into the fold of legitimate diamond trade. But the voices from Surat were referring to a wider issue. Two very respected figures of India's diamond industry were quoted by The Times of India on the issue.

GJEPC Vice Chairman Sanjay Kothari called the news from WDC "a major setback." According to him, "the industry, especially the diamantaires in Surat, was eagerly waiting for the Zimbabwe goods to flood the market in order to overcome the severe shortage of rough diamonds."

Kothari was joined by Sanghavi Exports Chairman Chandrakant Sanghavi, quoted by the newspaper as saying "The rough prices have appreciated by almost 30 percent in 2010 due to the shortage and the prices were expected to increase throughout 2011. The deadlock over the export of diamonds from Zimbabwe will create a difficult situation for the diamantaires."

Several million dollars worth of goods bought by Indian traders in Zimbabwe are stuck in Dubai. This is a very unpleasant situation, with goods paid for, but the diamonds are in limbo, out of reach. Another issue concerning Surat is the limited production capacity, estimated at 35%-40% below past processing capacity.

The high prices of rough, especially the smaller and less costly items, are driven by strong demand by Indian buyers. Only today, Rio Tinto, a main supplier of Indian goods, disclosed that average rough prices increased by more than 53% in 2010. But, as any rough diamond trader can attest, a large portion of the purchases is not for manufacturing, but for trading, or used as collateral against other financial tools, a practice that allows prices to rise sharply although polished prices are rising only moderately.

The desire, in fact a polite demand, that Zimbabwe's rough will be allowed to flow out, even without a final resolution, is not a good one. If the prices of rough are too high, than premiums need to be reduced and tender bidding relaxed. The resolution won't come from more goods imported from Harare.

India is the diamond industry's power-house. It's the largest trading center, the largest manufacturing center, and one of the world's largest consumption centers. With this dominate position comes a responsibility. If Zimbabwe's leaders prefer the illegal status so they can enjoy the benefits of smuggling, it is up to India to say 'No'. Zimbabwe depends on India for its diamond revenues, more than on any other center.