Natural Diamond Outlook: Indian Diamantaires Navigating Multiple Storms

Economic slowdowns, geopolitical tensions, and the rising popularity of lab-grown diamonds are clouding the outlook for mined diamonds.

Stephen Rego regostephen@gmail.com

Diamantaires in India currently face a number of challenges when it comes to natural diamonds, including a post-pandemic decline in consumer demand.

Mumbai—There are dark clouds hovering on the horizon as the Indian diamond industry prepares to enter the last few months of 2023 and look beyond to early 2024.

The clouds have been gathering for a while, the result of multiple smaller storms that have been brewing over the past year or so.

Major markets are seeing an economic slowdown, with the shadow of a possible global recession looming large.

Geopolitical alignments are changing, a factor that has gathered momentum following the start of the war in Ukraine.

These developments are having a big impact on global trade.

To top it off, there has been a sudden alteration in market dynamics within diamond jewelry retail, particularly in the United States, as lab-grown diamonds have made rapid inroads in the engagement ring segment.

Over the last 12 months, production of polished natural diamonds has slowed, dropping well below the levels seen last year.

Figures released by the Gem & Jewellery Export Promotion Council (GJEPC) show that between April and August 2023, i.e., the first five months of the Indian fiscal year 2023-2024, exports of polished diamonds have declined by 30 percent year-over-year in value terms, from $10.01 billion to $7.03 billion, and by 28 percent in volume terms, falling to 8 million carats from 11.1 million carats a year ago.

Sluggish Consumer Demand Worldwide

Ajesh Mehta of D. Navinchandra Exports, who is also convener of the Diamond Panel Committee of GJEPC, characterizes the downturn as being the result of “the vicious cycle of market forces.”

“Demand is sluggish across the world,” he explained. “The plateauing of the U.S. market was not entirely unexpected as the stimulus effect had ended and other categories of luxury experiences, like holidays, travel, etc., were once again available to consumers.”

However, the global slowdown has been deeper and wider than expected, he noted.

Diamond market analyst Pranay Narvekar of Pharos Beam Consulting said the no-show from Chinese consumers has hit the industry hardest.

“Indian diamantaires had high expectations after that market opened up in early 2023. Yet, as the year progressed, Chinese demand has remained stagnant. An important chunk of the global market has gone missing.”

GJEPC Executive Director Sabyasachi Ray believes manufacturers of small goods have been most impacted by the lack of demand from the Far East, which they had hoped would balance the end of the surge in demand from the U.S. market.

Additionally, there is another challenge the industry faces in what he characterizes as “mid-size goods,” diamonds between 0.70 and 2.5 carats. U.S. consumers have shown a preference this year for lab-grown diamonds in those sizes.

“India has a significant share in these sizes as well,” he said.

Impact Reaching Supply Side

As often happens, changes in supply patterns have lagged behind the drop in demand.

The inflow of rough diamonds has not slowed at the same pace as exports. In the first five months of this fiscal year, Indian imports have declined by 18 percent in value terms, from $7.9 billion to $6.4 billion, while remaining flat in volume terms.

Recent sales indicate that adjustments are now beginning on the supply side as well.

Observers believe that cutting and polishing of natural diamonds has been around 50 percent of capacity levels during the past year. However, unlike in previous downturns, this has not led to idle wheels and mass layoffs.

Most units have switched to cutting and polishing lab-grown products fairly seamlessly, along with some shortening the work week and cutting wages accordingly.

It is anticipated the traditional closure of diamond factories during the Diwali festival, which falls in mid-November this year, will be longer than usual.

Meanwhile, manufacturers’ stockpiles of polished diamonds are accumulating, even as prices have declined across most sizes.

Discussions With Miners

Against this backdrop, the Indian industry has reached out to major mining companies.

“After extensive consultations among diamantaires, we have communicated with miners and requested them to adjust their supply to market realities,” the GJEPC’s Ray said. “We are hopeful of a positive response so we can all ride out this difficult phase together.”

India’s domestic market provides another ray of hope.

The War in Ukraine

India also is gearing up to face new challenges after leaders of the Group of Seven (G7) announced they would be working together to tighten sanctions on Russian goods, including diamonds. The new sanctions reportedly will take effect Jan. 1.

Discussions have been going on at a government-to-government level and the exact details of the restrictions that will be implemented globally remain unclear at this point.

Many in the industry are hoping they will only apply to goods weighing 1 carat and above.

“In our discussions with U.S. officials, we have emphasized that tighter sanctions will hit the livelihoods of millions of artisans and their families,” GJEPC officials have said.

While individual companies with significant business in the U.S. already had initiated measures to ensure segregation within their pipeline following the initial sanctions imposed in 2022, preparations are on now for an industry-wide system.

Banner will be right here …

Trade bodies are putting the finishing touches on a system for tracking all goods above a certain size as they move through the cutting and polishing process in India.

GJEPC officials said once this scheme is in place, an official body will be able to certify segregation of a large spectrum of polished, barring perhaps the very small sizes.

This will ensure sanctioned goods are not sent to G7 markets, they said.

Disruption has become part and parcel of every business today, spurred by a combination of factors ranging from new technologies to political alignments to consumer sentiment.

A senior member of the industry recently averred, “The natural mined diamond manufacturing industry in India appears to be going through such a churning today.”