Exports of diamond expected to hit 5-year low in FY24 at $15-16 billion

India's cut and polished diamond (CPD) exports are expected to hit a five-year low in 2023-24 with a dip of around 25-30 per cent to $15-16 billion, according to a rating agency.

The demand in the near term is expected to remain subdued with no significant recovery anticipated in the segment in FY'25, CareEdge Ratings said in a note.

The US and China, the primary diamond-consuming markets, together account for approximately 65 per cent of India's diamond exports.

However, the economic conditions in the US and China, the rise of alternative discretionary spending options, the growing market for lab-grown diamonds (LGD), and geopolitical tensions have negatively affected India's cut and polished diamond exports, the rating agency note said.

These factors resulted in a 28 per cent year-on-year drop to $13.04 billion in the first ten months (April-January) of FY'24, driven by decreases in volume and value, it said.

The impending impact of G7 sanctions on Russian-origin diamonds regarding logistic and operational challenges for Indian CPD players would remain a key monitorable, CareEdge said in a statement.

In the medium term, CPD exports from India will be influenced by economic recovery in consumption markets, geopolitical landscape, and customer preference for diamond jewellery in the discretionary spending space, the rating firm observed.

"Players operating in smaller carat diamonds (below 0.3 carats) are expected to be better placed than entities dealing in certified diamonds due to lower price erosion and limited impact of lab-grown diamonds," CareEdge Ratings senior director Yogesh Shah said.

The price correction in smaller diamonds up to 0.3 carats was 5-10 per cent against 10-30 per cent for diamonds of higher carats.

The rating firm stated that the US diamond and jewellery industry is facing rising inflation challenges, and increased preference for experience-based spending has dampened customer sentiment.

"The growing popularity of lab-grown diamonds over natural diamonds in bridal jewellery due to price factors has further reduced demand in the largest diamond market," it said.

China, the second-largest market, has been in an economic crisis since 2018.

Real estate market collapse and preference for experience-based spending and gold jewellery have subdued diamond demand in the dragon country, the rating firm said.

To curb the losses and focus on liquidating inventory holding, the Indian entities self-imposed suspension of rough diamond imports for two months (October 15-December 15, 2023).