Topics Diamond industry | India diamonds | Crisil ratings

Vinay Umarji  |  Ahmedabad  Last Updated at July 25, 2022 23:34 IST

The diamond industry in Surat, Gujarat, is preparing for flat domestic and international demand as raw material prices rise and "recessionary trends" build in the west.

The industry has recorded a five per cent fall in demand as markets in Europe, the US, China and Hong Kong either retreat or stagnate. Diamond merchants are unsure of domestic demand picking up ahead of the festival season October to December, as local buyers are yet to confirm orders.

Rough diamond prices have increased by 10-15 per cent in the last one and half months amid a supply crunch due to US sanctions on Russia's Alrosa, said Bakul Gajera, who works with Surat-based Laxmi Diamond, a leading polisher.

Alrosa, which is partly owned by the Russian government and accounts for 40 per cent of the world's rough diamond supply in volume and 30 per cent in value, was put under sanctions in April 2022 by the US Treasury Department.

"Along with recessionary trends in western markets, China as a market has not yet opened up leading to fall in demand. Even on the domestic front, festive orders usually get firmed up by this time and may get impacted to some extent," said Gajera.

CRISIL Ratings has estimated that the Indian diamond industry will suffer a revenue fall of 15-20 per cent to $19-20 billion in the financial year 2022-23, compared with a decadal high last fiscal and after the double blow of falling demand and rising prices globally. DIAMOND: IN THE ROUGH Rough diamond prices are up by 10-15% Polished diamond demand down 5% Rough diamond supply impacted nearly 30% due to US sanctions on Russian mining firm Alrosa Indian diamond industry’s revenue could be down by 15-20% in FY23, says CRISIL Ratings

"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," said Subodh Rai, chief ratings officer at CRISIL Ratings.

CRISIL said Covid-19 cases have led to lockdowns in several regions in China, which is one of the largest consumers of Indian polished diamonds. In addition, inflation and the 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.

Kirti Shah, a leading diamond merchant in Surat, pegged demand to fall by 5-8 per cent if the situation continues and festive demand in the domestic market doesn't pick up.

India's gems and jewellery imports, including rough diamonds, grew by 8.79 per cent in US dollar terms and 13.97 per cent in rupee terms in April-June 2022 on a year-on-year basis to stand at Rs 52310.26 crore or USD 6.76 billion. Known for polishing nine out of ten diamonds in the world, Surat houses roughly 6,000 polishing units that employ nearly one million workers and clock up an annual turnover of $21-24 billion or Rs 1.6-1.7 trillion.

The industry has pinned its hopes on mines in Botswana believed to start work soon. Rough diamonds from those mines would reach India in 4-6 months, but they could ease up the import gap by 10 per cent.

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