DIAMONDS AND GEMS

Indian traders worried about Rio Tinto diamond asset sale

China could well topple India's monopoly in the diamond cutting and polishing business, if a Chinese company buys out Rio Tinto's Argyle diamond mine in Australia, fear Indian traders.

Author: Shivom Seth
Posted: Friday , 06 Apr 2012

MUMBAI (MINEWEB) - 

Diamantaires in Surat, Gujarat, are a worried lot. And, one of their biggest worries is that Rio Tinto will decide to sell its diamond business to a Chinese concern.

Rio Tinto owns the big Argyle mine in Australia and Argyle exports about 85% of its rough diamonds to Surat. If a Chinese buyer steps in, diamond traders are worried that India could well stand to lose its stranglehold on the diamond cutting and polishing business.

More than 90% of the world's rough diamonds come to India for cutting and polishing. A large delegation of the trade from India and a 30-member Russian delegation is participating in a gathering at Surat to ensure that diamond buyers meet up with Indian diamond manufacturers and have access to their wares.

Surat Diamond Association's Damji Mawani said if a Chinese company takes control of the Argyle mine, it would necessarily control supplies of rough diamonds. ``This will affect diamond traders in India, who will be forced to source their roughs from elsewhere and incur heavy costs in the bargain,'' he said.

Rough diamond prices have been on an upswing, rising 24% last year after two consecutive annual gains of 32%. India's annual requirement of rough diamonds hovers over $10 billion. In 2010-11, India imported $11 billion worth of rough stones, said traders. Gems and jewellery exports from India rose 11.65% to $32.1 billion during the April to December 2011 period.

Rio Tinto operates three diamond mines: Argyle in Australia, a 60% stake in Diavik in Canada, and a 78% interest in Murowa in Zimbabwe as well as an advanced diamond project in Bunder, India. Analysts' estimate Rio's diamond operations could sell for around $ 2 billion.

The Argyle mine supplies a significant volume of stones to the cutting and polishing traders in India. Its diamond business is the smallest contributor to Rio Tinto's earnings, dwarfed by its iron ore operations. If a possible deal happens, India could well lose control over the $1.5 billion worth of annual supply from the Argyle mine, traders said.

"Argyle alone accounts for around 20% of the global diamond supply and more than 90% of the world's production of pink diamonds. This is a very rare variety which is very popular in India,'' said Sarabhai Dholakia of the Harekrishna group, a diamond export house.

To date, though, a Chinese firm has not officially evinced interest in Rio Tinto's diamonds, Rio Tinto's Murowa mine in Zimbabwe lies close to a number of Chinese owned diamond operations. The fact that China has also emerged as the second biggest diamond cutting and polishing sector after India, has got many diamantaires worried. 

Traders point to the fact that diamond cutting and polishing in China increased from a mere $600 million in 2007 to $2 billion in 2011. ``China is now the world's second largest processor of small diamonds. It imports its rough diamonds from Antwerp, Israel and Africa. It is already giving the Indian cutting and polishing industry a run for its money with its skills in small diamonds,'' said Mawani.

In India, the cost for cutting and polishing one carat diamond is $13, while in China it is $17. Diamond traders in Antwerp charge $150, while those in Tel Aviv charge $100.

A recent report by KPMG India had noted that China's share of the global diamond processing industry is set to increase to over 21% by 2015. Moreover, traders said a growing number of Israeli companies were opening polishing plants in China, further leading to the boom.