The 6,000-odd registered jewellers in the country seem to have again started booking raw material, believing the recent sharp recovery in the rupee’s exchange rate is over for now and a further rise is unlikely in the near future.

The jewellery industry predominantly depends on imports for raw material supplies. The cost of these imported raw materials make up about 75 per cent of the cost of the products exported by the industry.

Stocks are being booked now with an eye on meeting the next seasonal demand peak, in May. Generally, jewellery manufacturers procure raw materials to make their products three months ahead of the season. The wedding season this year is forecast to remain thin and many plan to stock raw materials for the season beyond, too.

As a consequence, orders for the raw materials have jumped 15-20 per cent in recent days, as compared to the same time last year. Rough diamond processors have also intensified bookings to take advantage of the rupee’s appreciation, said Sanjay Kothari, vice-chairman of the Gems & Jewellery Export Promotion Council (GJEPC).

“Just a little over a month ago, on December 14, the rupee fell to 53.72 against the greenback. It has now appreciated to below 49. Hence, this is a good opportunity for jewellers to book raw materials,” said Kothari.

After the mid-December peaking of the dollar against the rupee, gold prices globally rose 8.8 per cent; however, in India, it became cheaper by 2.9 per cent due to an 8.4 per cent appreciation in the rupee, beside lower demand. The rise in import duty on gold, from a flat Rs 300 per 10g to two per cent of the import value, was also nullified with the rupee’s rise.

Many fear a renewed fall in the rupee, combined with a rebound in the prices of gold and silver. Before this happens, they wish to complete bookings well in time.

India processes 11 of every 13 rough diamonds mined across the world, paying in dollars. Hence, their buying (and selling) strategy largely depends on volatility of the rupee.

“The rupee’s sudden change is a discouragement for exporters, due to the possibility of lower realisation of exported goods,” said Rajiv Jain, chairman of GJEPC.

Raw material costs constitute 80 per cent of the value of jewellery items. Value addition make up the remaining 20 per cent.

Another hurdle for domestic jewellery manufacturers is the rise in import duty on precious metals and stones. The government’s aim is to bring down the overall import of gold and silver in India, estimated at 900-1,000 tonnes and 1,200 tonnes, respectively, in 2011.

“Generally, our labour input (cost) is five to 10 per cent and operational cost around 10 per cent. So, the rupee’s volatility had not impacted much. But a depreciating rupee and rising input cost made jewellery unaffordable for many consumers. The rupee’s appreciation will provide some breather to them, which would help increase domestic sales,” said Mehul Choksi, managing director of Gitanjali Gems, the country’s largest branded jewellery producer and retailer.

Gitanjali is planning to pass on the benefit of lower raw material costs through appreciation in the rupee to consumers in the form of lower jewellery prices.

Source: business-standard.com