Due to the severe decline in demand in the two biggest consuming markets, the US and China, the nation’s cut and polished diamond (CPD) export is expected to drop by 25–30% this fiscal year to a multi-year low of USD 15–16 billion, and it is unlikely to improve even the following fiscal year, according to a report.
As a result, Care Ratings stated in a note Wednesday that it does not anticipate a major recovery in FY25 and that the exports will fall to a multi-year low in the current fiscal year, providing a negative outlook for the CPD industry.
India is the world’s largest center for diamond cutting and polishing, accounting for around 95 per cent of the world’s polished diamond production, while the US and China are the primary consuming markets, together accounting for around 65 percent of the country’s exports.
Following the pandemic, a surge in diamond jewellery demand, spurred by the economic stimulus in the US and limited opportunities for experiential spending, propelled CPD exports to record highs in FY22 at USD 24.43 billion and in FY23 at USD 22.04 billion.
However, a decline in CPD demand began in December 2022 and despite expectations of a recovery during the holiday season of H2FY24 due to the economic conditions in the US and China, the increased alternative discretionary spending options, the growing market for the cheaper lab-grown diamonds (LGDs) etc have negatively affected exports. This resulted in a 28 per cent on-year drop in exports to USD13.04 billion in the first ten months of FY24, according to the report.
This demand-supply imbalance has put pressure on the pricing of polished diamonds, leading to a price correction to the tune of 5-10 per cent for diamonds below 0.3 carats, 20-30 per cent for 0.3-3 carat diamonds, and 10-20 per cent for diamonds above 3 carats in 2023, leading to lower export earnings.
Another reason was the high inventory at the start of FY24 and the subsequent fall in prices, which impacted the scale and profit margins, resulting in a higher-than-anticipated decline in total operating income, profitability and gross cash accruals.
Thus, the outlook for the CPD industry is negative and the agency expects exports to hit a multi-year low in FY24 with a 25-30 per cent fall in realization to USD15-16 billion. Further, the agency does not expect a significant recovery in FY25 as well.