Diamond industry set to lose lustre as banks cut down on leanding

on Tuesday, 22 April 2014. Posted in Blog

Indian diamond industry that is worth $28 billion is heading towards a stormy phase with banks drastically cutting on lending. This is on account of prices of rough diamonds rising too fast while there is little upward movement in the prices of polished diamonds.

Antwerp Diamond Bank (ADB) and the ABN Amro, the two biggest lenders, have already reduced the lending to 70 per cent of the rough diamond purchases demanding that buyers part with more of their own cash.

The decision has come following a slew of default cases in the last couple of years by the diamond companies. In the last one year, two Antwerp-based Indian diamond companies have gone bust on the bank loans of Rs 800 crore.

The diamond companies in India, Antwerp and Dubai receive $15 billion worth of finance for the purchase of rough diamonds per annum. However, diamantaires, cutters, polishers and manufacturers are being squeezed as diamond miners demand more for rough stones.

"Recently, De Beers has increased rough diamond prices by three to five per cent. This is putting a lot of pressure on the diamantaires and the market," said a diamantaire.

Over the last 18 months, the top mining companies have adopted more aggressive pricing policy for the rough diamonds in order to discourage buyers from flipping rough stones instead of polishing them. Most of the clients, mainly in India, indulged in hoarding of rough diamonds to disturb the demand supply ratio to command higher prices in the secondary markets of Mumbai and Surat.

Experts said that in the last one-and-a-half-year, the rough diamond prices have increased by almost 10 to 15 per cent. In the secondary market, the prices have appreciated by almost 20 to 25 per cent. "It relates to concerns we have about the industry," said Antwerp Diamond Bank's executive vice-president for strategy and communication, Bruno Nelemans to an online portal.

"The bank was not feeling happy about the pricing of rough diamonds compared to polished prices and diamond jewellery," he said.

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