BHUBANESWAR, JULY 25, 2022
Revenue of the Indian diamond industry is set to be cut 15-20 per cent to $19-20 billion in the current financial year, compared with a decadal high last fiscal, following a double blow from falling demand and rising prices of roughs across the globe.
Among the demand dampeners, a surge in Covid-19 cases has led to lockdowns in several regions in China, which is one of the largest consumers of Indian polished diamonds. Additionally, inflation and opening up of other avenues of discretionary spending, such as travel and hospitality, will dampen demand growth in the US and Europe in the near term.
As for prices, the US sanctions on Russian diamond mining company Alrosa following the invasion of Ukraine has cut supplies of rough diamonds by almost 30%. The state-owned company is the largest diamond producer in the world and the supply constraint will continue amid sanctions on Russia.
Also, key buyers in the US and EU have been insisting on certificates of origin. As a result, the prices of roughs have shot up almost 30% since the start of this fiscal.
“While volatility in rough diamond prices is typically passed on to the polished diamond prices — albeit with a lag due to the long operating cycle in the trade — tepid demand has kept polished prices from fully catching up with rough prices this time around. This could squeeze the operating profitability of Indian diamond polishers by 75-100 basis points to 4-4.25% this fiscal. Accordingly, interest coverage may weaken marginally,” says Subodh Rai, Chief Ratings Officer, CRISIL Ratings.