SURAT: The downward correction in the rough diamond prices by 15-20 per cent in the recently concluded diamond tender by the Australia-based global diamond miner, BHP Billiton, has shaken the confidence of the world's biggest diamond cutting and polishing centre in Surat.

As the industry is hit hard by the severe liquidity crisis, the diamantaires and dealers have started panic selling of the polished inventories offering lower prices in the range of 4-5 per cent, believing that there may be further correction in the prices in the next couple of months.

Industry leaders believe diamantaires have lost confidence following the technical price correction, thinking about the global economic downturn in 2008, without realizing that the situation today is not comparable at all to what happened then.

"The bottom line is that we have run out of cash as an industry," said a DTC sightholder. "We pay cash in advance for the rough we buy from primary sources but sell all our polished on credit. To buy rough we have to either sell polished cheaper or start selling our rough boxes cheap, which is what has happened," he continued. Ajay Sharma, a diamond dealer, said, "We have to act in a more responsible way. Reduction in prices will not help anyone, but we will loose the confidence of the consumers the world over."

Surat is the world's biggest consumer of rough diamonds. Out of the $12 billion worth of rough diamonds mined across the world per annum, about $8-9 billion worth of goods are consumed by the diamond manufacturers in Surat. In the past six months starting from January 2011, rough diamond prices have appreciated by almost 45 per cent.

However, a sudden technical correction in the rough prices by 15-20 per cent have left many diamantaires to become more cautious and reduce purchases at higher prices. This has resulted in reduced demand.

"I would say the recent decrease in the rough diamond prices was purely done by the interested big dealers who want the market to collapse. Diamantaires are a disturbed lot. They are selling the polished stones, compromising on their profit margins," said Dinesh Navadia, president, Surat Diamond Association.

If one looks at the market dynamics, June and July is normally considered as a slow period as this is vacation time for most of the western countries like U.S. The market picks up in August with the marriage season beginning in China, Korea, Taiwan and many Far East Asian countries.

The festival season in India has already started and the sale of jewellery will attain its peak during Diwali, Dusshera, Navratri and the marriage season starting from November. Also, the overseas buyers will start placing their orders ahead of Christmas festival.