19% Year-on-year Exports Contraction Reported By Diamond Industry

New Delhi, Sep 27 (KNN) The diamond export industry is experiencing significant challenges, with a reported 19 per cent year-on-year contraction in exports over the first four months of FY2025, according to a recent note from ICRA.

This downturn is largely attributed to subdued demand in two key markets: the United States and China. In the U.S., inflationary pressures have weakened consumer spending, while in China, shifting consumer preferences have seen buyers gravitating towards gold instead of traditional diamond purchases.

Sakshi Suneja, Vice President and Sector Head of Corporate Ratings at ICRA, highlights the dual impact of economic conditions in both countries. "Weak economic indicators and persistent inflation in the U.S. have dampened demand," she explains. "In China, renewed interest in gold amidst economic uncertainties has further complicated the landscape for diamond sellers."

Although a seasonal uptick in demand is anticipated with the upcoming festive period, this increase is expected to be counterbalanced by continued pressure on polished diamond prices.

High inventory levels among suppliers are likely to stifle any significant price recovery, with polished diamond prices already having reached a historic low in August 2024, a decline that has been ongoing since April 2022.

The geopolitical climate is also contributing to the industry's woes. Sanctions imposed by G7 nations on Russian diamonds have restricted supply channels, affecting demand across Europe.

Additionally, the rise of lab-grown diamonds, which are available at significantly lower prices, is eroding demand for larger natural diamonds, particularly those weighing between one to three carats.

Despite these challenges, India remains a relative bright spot in the global diamond market. There is a growing preference for diamond-studded jewelry among Indian consumers, offering some respite to the otherwise bleak outlook.

However, ICRA has retained its negative sector outlook, predicting that pressures on polished prices will persist throughout the second half of FY2025.

Rough diamond prices, after experiencing some corrections, are expected to stabilise as miners implement production cuts to align with the decreased demand.

This includes the third-largest supplier, Alrosa PJSC, which is facing intensified sanctions. As a result, the rough-polished price differential is expected to remain under pressure, impacting the operational margins of Indian diamantaires.

ICRA further notes that the credit profile of Indian diamond players has weakened due to stretched working capital cycles resulting from inventory buildup amid falling demand.

The agency anticipates that this subdued credit environment will persist into FY2025, with companies needing to focus on efficient inventory management to navigate these challenging conditions effectively.

(KNN Bureau)