Diamond jewellery sector to remain subdued on volatility

After around four months of subdued demand, the global diamond jewellery sector has revived, albeit marginally, in September, raising Indian processors’ hopes of better margins.

India, which processes 11 out of every 13 rough diamonds mined globally, faced huge margins pressure in the April–July period because of elevated rough diamond prices and reduced realisation on weak demand. But, demand was seen reviving in the US, which consumes about 45 per cent of global luxury items. There has also been a recovery in domestic demand of late.

“Diamond jewellery demand remained moderate between January and March, but, worsened thereafter because of a slowdown in the global economy, and China in particular. However, a turnaround started in the second half of July. Jewellers received orders after the mega jewellery exhibition India International Jewellery Show (IIJS) in August, which still ongoing. So, 2016 so far has remained turbulent for the domestic sector,” said Praveen Shankar Pandya, chairman, Gems & Jewellery Export Promotion Council (GJEPC).

In fact, leading rough diamond miner De Beers has painted a gloomy picture for the sector this year. In its annual report, “The Diamond Insight eport 2016”, De Beers said, “Macroeconomic volatility has contributed to subdued global growth in consumer demand for in the first half of 2016.

The gradual adjustment of China’s economy away from investment-led growth to consumer-driven growth is still under way and volatility in Chinese demand can be expected in the short term. India’s path to more sustainable public finances will also involve initial adjustments to consumer spending. In the medium to long term, demand is expected to grow in real terms, provided the industry as a whole continues to invest to strengthen its competitiveness.”

Meanwhile, Japan and most European countries are expected to continue to see subdued consumer demand growth, given the weakness in their macro trends. But the US economy has continued to post strong growth in consumer spending.

“If the strength of the US economy leads the US Federal Reserve to increase interest rates, this could result in more volatility in the currency markets. With geopolitical risks perceived to be on the increase in the short term, industry participants will need to invest in resilience and potential growth areas to succeed,” the report said.

Indian manufacturers, however, estimate no significant jump in exports this year as uncertainty looms over the continuation of growth in the US economy.

After years of buoyant growth, 2015 saw consumer demand slow in China and decline in India. In China, the widely reported economic slowdown was the main contributor to the slower growth in diamond jewellery sales, but a change in patterns of travel by Chinese consumers also played a role.

In India, however, the decline was driven by restrictions in consumer credit and overall weakness in consumer spending. Other markets saw declines in the value of sales, driven by unfavourable macroeconomic situation and large devaluations of currencies against the US dollar.