Falling rupee fails to take the shine off diamonds

The relentless fall of the Indian rupee has not dampened demand for rough diamonds in India, by far the world's largest processor of the stones, the chief executive of miner Petra Diamonds Ltd said in an interview.

The rupee fell to a record low of 60.76 to the dollar recently and is down about 11 per cent since the start of May.

...

"We haven't seen any effect ...," said Petra Chief Executive Johan Dippenaar. "Indian companies are still strong buyers, but I don't want to for one moment say 'no' it will certainly have no effect."

Petra Diamonds has been holding an auction in Johannesburg this week, its last of the financial year. "We have not noticed an impact (from the weak rupee) on the number of Indian clients attending," company spokeswoman Cathy Malins said in an email.

...

Petra Diamonds, whose customers are primarily in India, the United States and China, gets most of its production from five mines that it bought from Anglo American's De Beers unit, the world's biggest diamond producer by value.

India imported 31 million carats of rough diamonds in April-May, up about 26 per cent from the same period in 2012, according to data from the Gems and Jewellery Export Promotion Council, an Indian trade body.

...

India processes more than 90 per cent of the world's diamonds, most of which are exported. Petra Diamonds, which has seven producing mines in South Africa and one in Tanzania, is also sensitive to the movement of the South African rand, which hit a four-year low against the dollar in June.

...

Like the rupee, the rand is getting hit by both local economic factors and demand for dollars as the US economy recovers, arousing talk that the US Federal Reserve will soon start to wind down its stimulus programme.

Dippenaar said the weaker rand was good for earnings but would add to costs in the longer run.

...

"Materials that we use are based on an international price, like explosives and diesel; that's all linked to oil price. (The weak rand) obviously drives up those costs so it's a bit of a double-edged sword," he said.

However, Dippenaar said he was more concerned about markets over-reacting to last week's comments by the Fed, which hinted that it would begin slowing the pace of its bond-buying stimulus later this year.

...

"When you see the type of reaction that we've seen in the market it obviously creates concern that people's confidence and mood will be somewhat subdued," he said.

"But we haven't made any sale since those announcements so we will monitor what happens in the market."

...

Diamond prices have languished over the past few years, mainly due to sluggish demand in developed markets. Producers are hoping for sales to pick up as disposable incomes rise in populous nations like China and India.

"We remain confident that in the medium term, and especially in the medium to longer term, our market should remain robust because of the supply to market," Dippenaar said.

...

"Effectively no new ore bodies have been found, so it all points to one thing: tight supply to the market." The supply of diamonds in the world remains constrained as no major deposits have been discovered in 20 years despite billions of dollars spent on exploration.

...

Petra Diamonds, which produced 2.2 million carats in fiscal 2012 ended June 30, plans to more than double production to five million carats by fiscal 2019. De Beers produced 27.9 million carats in 2012 and has said it expects about the same this year.

Dippenaar said the company's cash flow would grow significantly by fiscal 2016 as its mines go deeper, giving it access to higher grades.

...

Petra Diamonds' shares were down 0.53 per cent at 113 pence on the London Stock Exchange on Friday afternoon. The stock has traded between 96 pence and 133.9 pence over the past year.