3 min readMumbaiSep 27, 2024 08:21 AM IST
First published on: Sep 27, 2024 at 12:21 AM IST
India’s cut and polished diamond (CPD) exports are set to decline to decade low levels of $12.5-13.0 billion, reflecting a year-on-year contraction of 18-19 per cent in FY2025. The decline is led by a 13-14 per cent decline in volumes along with the softening of average realisations by 5-6 per cent.
Diamond exports from India contracted by 28 per cent in FY2024, led by the worsened global macro-economic conditions and increased competition from lab-grown diamonds (LGD).
With sustained subdued demand conditions in the two key consuming markets – the US due to inflationary pressures and China on account of changing consumer preferences away from diamonds, the downturn in exports continues, with the industry witnessing a 19 per cent YoY contraction in diamond exports in four months of FY2025, ICRA said in a note.
While some sequential improvement in volumes is expected in the coming months, driven by the onset of the festive season, the same will be offset by continued pressure on polished prices, especially given the current high inventory levels. The rating agency has retained its sector outlook at ‘Negative’.
According to Sakshi Suneja, Vice President & Sector Head – Corporate Ratings, ICRA, diamond players have been facing a persistent demand slowdown in the US and China due to weak economic conditions and continued inflationary pressures. Demand from China has been additionally impacted by the renewed popularity of gold amid economic uncertainties prevailing in the country.
Besides, geopolitical tensions and restrictions imposed by G7 countries on Russian diamonds have impacted demand across Europe. Furthermore, lab-grown diamonds, which are priced significantly lower than natural diamonds, continue to impact the demand for large-sized diamonds in the range of one to three carats, ICRA said.
India remains the only bright spot globally, with increasing preference for diamond studded jewellery. The polished prices have been declining since April 2022 following a demand slack, dropping to an all-time low in August 2024.
The pressure on the polished prices is expected to continue in H2 FY2025 as well despite the onset of the festive season, as diamond players offload their current high inventory. Rough prices, which saw some correction in recent months, are now expected to remain firm as most miners have announced production cuts in FY2025 to match the demand, the rating agency said.
This, coupled with intensified sanctions on Alrosa PJSC, the third largest roughs’ supplier, by G7 nations, should restrict any further price correction in roughs.
Consequently, the rough-polished differential is expected to remain under pressure. This, along with reduced scale of operations, will shave off 60-70 bps of OPM of Indian diamantaires in FY2025, in ICRA’s assessment.
“The credit profile of Indian diamond players weakened in FY2024 due to stretched working capital cycle led by inventory pile-up amid a slowdown in demand and increase in global lending rates,” it said. The credit profile of the diamond players is likely to remain subdued in FY2025 following the reduced scale of operations, lower profitability and continued stretched working capital cycle. However, the impact of decadal low levels of scale of operations will be less pronounced in some entities, which can control their working capital efficiently and limit its dependence on external debt. Thus, inventory management will be critical from the credit perspective, ICRA said.
India remains the only bright spot globally, with increasing preference for diamond studded jewellery. The polished prices have been declining since April 2022 following a demand slack, dropping to an all-time low in August 2024.
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