Manufacturers of diamonds are under severe pressure due to a weak demand and oversupply of polished diamonds. The situation has emerged as very serious for Indian manufacturers, who have witnessed almost the same downturn as the market experienced in crisis last year. Falling polished diamond prices are not showing any signs of recovery as well, thus many manufacturers are losing money on rough diamonds.
Mixed Market Conditions
Interestingly, American dealers seem to be more optimistic about the outlook. They believe that demand from retailers is steady, even though it is not as high as it was throughout 2021 and early 2022.
To them, the Las Vegas trade shows were relatively positive events. Trading conditions seemed better than they had been for some time. This is still not an easy market to predict.
Market Fluctuations and Supply Issues
The last one year has been a rollercoaster for the diamond market. Various factors have dented consumer demand for natural diamonds, particularly in the U.S., due to problems such as synthetic diamonds, inflation, and high interest rates.
At the same time, the Chinese market remains flat, though consumers seem to prefer gold more than diamonds for investment purposes. Strong jewelry demand in India could not offset the decline globally.
In late 2023, India announced the voluntary halt in the import of rough diamonds to manage the oversupply. This decision was taken after recommendations from industry bodies such as the GJEPC.
This definitely improved the situation for a while, with trading activity picking up in early 2024. Again, it was an uneven recovery, driven mostly by inventory gaps and not real consumer demand. By mid-2024, inventory levels were on their way up again, with a special rise noted in lower-quality diamonds.
Crisis Overtakes Indian Manufacturers
Indian diamond manufacturers are in a tight corner. Some may have had a good performance at the JCK Las Vegas show in June, but since then sales have come crashing down. Many manufacturers are trying to offload stock that they reduced in price lately, only for buyers to only be purchasing diamonds that meet specific needs.
The polished diamond prices have been falling faster than that of the rough diamonds, leading to huge losses for the manufacturers. Many of these manufacturers do not want to reduce production drastically because it will result in loss of workers, supply chains, and credit lines. Such consequences may be detrimental in the long run. Production cuts, therefore, have not been as severe as the fall in sales.
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Concerns on Import and Inventory
India’s rough diamond import, an indicator of manufacturing, had quickly recovered to pre-moratorium levels in early 2024. This inflow did not match the sluggish polished exports, indicating too much rough was imported in relation to actual demand.
In the first five months of 2024, rough diamond imports by volume increased by 5 percent, while the value fell 3 percent because of falling prices. While the value of rough diamond exports from India surged 55% during the same period, the value of India’s polished diamond exports fell 21%.
Here is the view of Rough Diamond Imports:
Global polished diamond inventories, which remained at high levels throughout 2023 – did begin to decline following the import freeze by India but have been climbing again since May 2024. In India, there has been a big jump in the levels of stock while in the U.S., there has only been a modest rise in the levels.
In contrast to Indian dealers, American ones seem to be faring better. They are cautious and buy only as per requirement so as not to force prices further down. Chinese retailers have almost stopped buying; some are even selling back unwanted stock.
It could be more troubled times ahead for the U.S. market if these wholesale price declines trickle down to the consumer prices. American dealers, however, are more nimble with their inventories in better alignment with demand. They can cherry-pick what they buy, sidestepping a big part of the problems squeezing Indian manufacturers, which rely more heavily on the more expensive debt and hence are more sensitive to the declining prices.
Structural Issues and the Need for Change
The present-day crisis exposed deeper, structural issues in the diamond industry. Over the past two years, big global events—the pandemic, inflation, China’s economic slowdown, have taken a heavy toll on diamond demand. The peaks and troughs of the industry are extreme, and Indian manufacturers in particular have a hard time adjusting production without long-term consequences.
There is a building consensus that it is time for enhanced marketing to revive consumption demand. According to Vipul Shah, chairman of GJEPC, there are temporary measures like freezes on import and others that might bring relief in the short term, but serious attention to consumer confidence and marketing would have to be the real long-term solutions.
That is to say, the Indian diamond industry would probably have to adopt more fundamental changes to ride out the current turmoil and find long-term solutions when demand becomes slow.
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