Indias Cut and Polished Diamond Exports Facing Five-Year Low in 2023-24

India's cut and polished diamond (CPD) exports are projected to plunge to a five-year low in the 2023-24 fiscal year, marking a significant decline of around 25-30% to USD 15-16 billion, according to a recent report by CareEdge Ratings, a leading rating agency.

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Subdued Demand and Global Challenges

The near-term outlook for CPD exports remains subdued, with no substantial recovery anticipated in the segment during the 2025 fiscal year. The primary factors contributing to this decline include the economic conditions in the United States and China, the rise of alternative discretionary spending options, the growing market for lab-grown diamonds (LGD), and geopolitical tensions.

Impact on Exports

The combined impact of these factors resulted in a substantial 28% year-on-year drop in CPD exports during the first ten months (April-January) of the 2024 fiscal year, reaching USD 13.04 billion. This decline was driven by decreases in both volume and value of exported diamonds.

G7 Sanctions and Market Dynamics

The impending implementation of G7 sanctions on Russian-origin diamonds poses additional challenges for Indian CPD players, particularly in terms of logistics and operational disruptions. The rating agency emphasizes the need to closely monitor the impact of these sanctions on the industry.

Medium-Term Outlook

In the medium term, the recovery of CPD exports from India will depend on several key factors, including economic recovery in consumption markets, the geopolitical landscape, and consumer preferences for diamond jewelry within the discretionary spending space.

Smaller Carat Diamonds

Players operating in the smaller carat diamond segment (below 0.3 carats) are expected to fare better than those dealing in certified diamonds. This is attributed to lower price erosion and the limited impact of lab-grown diamonds in this category. The price correction for smaller diamonds up to 0.3 carats was observed to be 5-10%, compared to 10-30% for higher carat diamonds.

Challenges in Key Markets

The US diamond and jewelry industry is currently facing rising inflation challenges, coupled with a shift in consumer preferences towards experience-based spending. This has dampened customer sentiment and reduced demand for diamonds. Additionally, the growing popularity of lab-grown diamonds over natural diamonds in bridal jewelry, driven by price factors, has further reduced demand in the largest diamond market.

China, the second-largest diamond market, has been grappling with an economic crisis since 2018. The collapse of the real estate market, along with a preference for experience-based spending and gold jewelry, has subdued diamond demand in the country.

Industry Response

In response to these challenges, Indian entities implemented a self-imposed suspension of rough diamond imports for two months (October 15-December 15, 2023) to curb losses and focus on liquidating inventory holdings.

India's cut and polished diamond exports are facing significant headwinds in the near term, with a projected decline of 25-30% in the 2023-24 fiscal year. The combination of subdued demand, global economic challenges, and the rise of alternative spending options has impacted the industry. While the medium-term outlook remains uncertain, players operating in smaller carat diamonds and those able to adapt to changing consumer preferences may be better positioned to weather the storm.