India’s Diamond Polishing Sector Hits Decadal Low, China Market Remains Resilient

India’s diamond polishing sector struggles, reaching its lowest point in a decade due to declining diamond prices and a shift towards lab-grown diamonds. Revenue is projected to fall sharply, with exports to the U. S. , a major market, declining markedly. This downturn is compounded by sanctions on Russian diamonds, which strain supply chains. In contrast, China’s diamond market remains robust, projected to grow considerably, driven by cultural significance and demand stability despite changing marriage rates. E-commerce trends further support this growth. Strategic adaptations, including sustainability and technological advances, are necessary for India’s recovery as the global market dynamics evolve. Investigate more insights ahead. This diamond industry crisis has prompted Indian diamond polishers to explore new markets and diversify their product offerings. Additionally, adopting more sustainable and ethical practices in diamond mining and processing could help improve India’s standing in the global market. Technological advancements, such as the use of artificial intelligence and automation, may also play a critical role in revitalizing the Indian diamond polishing sector and ensuring its long-term viability in the face of these challenges.

Main Highlights

• The Indian diamond sector's revenue is projected to drop by 25-27% to $12 billion in FY25, marking a decadal low.
• Exports from India's diamond sector have significantly decreased, with U.S. market exports declining by 43%.
• Lab-grown diamonds are increasingly popular, with the market share in the U.S. rising to 25% in value.
• China's diamond market is expected to grow by over USD 1.50 billion from 2024 to 2029, showing resilience.
• Geopolitical tensions and sanctions on Russian diamonds are disrupting global supply chains, impacting the Indian diamond industry.

Revenue and Export Challenges

The Indian diamond polishing sector is currently grappling with significant revenue and export challenges. A substantial drop in revenue, expected to plummet by 25-27% to a decadal-low of $12 billion in FY25, underscores the industry's ongoing struggles. This marks the third year of consecutive revenue declines, exacerbated by a 10-15% fall in diamond prices due to an oversupplied market. The shift in consumer preference towards lab-grown diamonds (LGDs), which are significantly cheaper, is further contributing to the revenue challenges faced by the industry. Over 7,000 companies are engaged in diamond-related activities, highlighting the extensive network affected by these challenges. The rise in popularity of lab-grown diamonds, coupled with the Indian labgrown diamond prices drop, is intensifying pressure on the natural diamond industry. Many smaller businesses within this extensive network are struggling to adapt to shifting market dynamics, leading to fears of potential layoffs and closures. As global demand for natural diamonds weakens, industry leaders are urging for innovation and diversification to safeguard the sector’s future.

The United States, a vital market, has seen a 43% decline in diamond exports over two years, reducing its share of India's diamond exports from over 40% to 35%. The youth population in key markets increasingly favors lab-grown diamonds, which has added to the decline in demand for natural diamonds.

Export challenges are likewise daunting, with a noticeable decline from $25. 48 billion in 2021-22 to $18. 37 billion in 2023-24. G7 sanctions on Russian diamonds have further strained supply chains, intensifying these export challenges. Furthermore, China, now a significant market for India’s diamonds, is pivoting towards gold jewelry amid economic uncertainties, affecting general demand for diamonds. India’s stance on Russian diamond sanctions has also added to the complexities of the export situation. The country has traditionally maintained a neutral stance on international conflicts, but the G7 sanctions have forced India to navigate its relationships between Russia and its Western allies. This delicate diplomatic balance has added an extra layer of uncertainty to the already challenging export landscape.

In response, Indian diamond polishers are strategically limiting rough diamond purchases and scaling down production. These efforts, alongside miners reducing output, aim to stabilize the market and mitigate further revenue and export declines, highlighting the need for improved supply chain resilience.

Shifts in Consumer Preferences

Amidst the challenges faced by India's diamond polishing sector due to declining revenues and export hurdles, consumer preferences are undergoing a significant transformation. The shift towards lab-grown diamonds (LGDs) illustrates a growing demand driven by affordability and ethical sourcing. LGDs, up to 90% cheaper, are increasingly favored by younger consumers who prioritize sustainability. Market data indicates that the share of LGDs in the U.S. has surged from 8% to approximately 25% in value over the past two years. The influence of lab-grown diamonds is evident as it continues to reshape consumer purchasing behavior, leading to a transformation in U.S. diamond consumption patterns. This change underscores the importance of ethical sourcing and environmental concerns in purchasing decisions. The rise in e-commerce is expected to further boost online fine jewelry purchases by 9-12% CAGR, as consumers increasingly turn to digital platforms for convenience and variety. As global economic conditions impact luxury goods demand, industries must adapt to these changing consumer preferences to maintain relevance in the market.

Additionally, demographic shifts, especially among Generation Z, further illustrate the changing landscape. This group not only spends more on luxury items but actively seeks brands that mirror their ethical and environmental values. Such trends dictate a new phase of diamond consumption, where transparency and ethical practices are paramount in shaping consumer choices.

China's Market Dynamics

Several factors shape China's diamond market dynamics, particularly its rapid growth and inherent challenges. With the market projected to expand by over USD 1.50 billion from 2024 to 2029, driven by rising incomes and evolving consumer behavior, China's diamond industry continues to thrive. The market, valued at approximately USD 8.8 billion in 2022, is fueled by increasing demand, especially among women, and a burgeoning middle class. The strong demand from the middle class continues to propel the luxury goods market, supporting the diamond industry's expansion. Household consumption as a percentage of GDP remains below the global average, reflecting cautious consumer behavior as families prioritize saving over spending.

Despite the muted demand in key export markets, China's market remains resilient, highlighting the country's unique economic landscape. This growth is bolstered by the cultural significance of diamonds, with 47% of brides receiving diamond jewelry in 2022, reflecting evolving consumer behavior despite a decline in marriage rates. However, challenges persist, including a maturing market and volatile diamond prices. Economic shifts and cultural changes influence Chinese consumer habits, creating a gap between purchase intent and actual buying behavior.

The rise of lab-grown diamonds offers a cost-effective alternative, gaining traction among the younger demographic. Furthermore, the B2C channel is gaining prominence, supported by the online environment's expansion in online diamond sales. Despite these hurdles, China's diamond market remains the world's second-largest, highlighting the resilience and potential of its dynamic market structure, driven by both B2B and B2C frameworks.

Inventory and Production Trends

India's diamond polishing sector is grappling with inventory and production challenges as it navigates shifting market dynamics. A significant inventory buildup has been noted, with unsold diamonds being returned to India increasing from 35% to 45.6%. This has consequently discouraged further rough diamond imports. The industry faces a 24.5% drop in rough diamond imports, with net imports plummeting by 25.3%, although the volume of imports has risen by 5% to 57.7 million carats. Despite this increase in volume, the value of these imports declined by 3%, reflecting the underlying demand issues. Meanwhile, a shift in supply sources has been observed, with Dubai's share in India's rough diamond imports increasing significantly, underscoring the changing dynamics in the diamond trade. American dealers have managed to maintain a better alignment of inventory with market demand, allowing them to withstand market fluctuations more effectively. The sector has responded to these challenges with production cuts. However, these cuts have not yet matched the steep decline in sales, exacerbating the inventory buildup. Exports of cut and polished diamonds fell dramatically by 34.6%, and sales are projected to drop by up to 27% by March 2025. The growing preference for lab-grown diamonds, which are substantially cheaper, continues to challenge the traditional diamond market. This decline is driven by muted demand, a notable fall in diamond prices, and evolving consumer preferences. Miners and polishers have restricted production and purchases to stabilize prices, aiming to reduce inventory levels by over 10% this year, thereby mitigating pricing risks and improving financial stability.

Global Economic Influences

The global economic landscape considerably influences India's diamond polishing sector, particularly through inflation, currency fluctuations, and geopolitical tensions. Inflation reduces consumer purchasing power, leading to decreased demand for luxury items like diamonds, while currency fluctuations can alter the competitive dynamics of diamond trade by affecting costs and pricing in international markets. Furthermore, geopolitical tensions, such as those involving sanctions on major diamond-producing nations, can disrupt supply chains and create volatility, further impacting India's diamond export potential and market positioning. As sanctions on Russia reduce availability, these factors intensify market pressure, challenging India's ability to maintain its share in the global diamond market. Additionally, the rise of synthetic diamonds presents an economic challenge, as they offer a cost-effective alternative that could potentially shift consumer preferences away from traditional diamonds. The muted demand in key markets like the US and China further exacerbates these challenges, as it underscores the global shifts in consumer behavior impacting India's diamond industry.

Inflation Impact on Demand

Amid escalating global economic uncertainties, inflationary pressures are exerting a significant impact on the demand for polished diamonds, particularly in major markets like the United States and China. The inflation effects observed in these economies highlight a decrease in consumer confidence and disposable income, vital elements that drive the luxury goods market. The decline in demand for diamonds is further influenced by the growing competition from synthetic diamonds, which offer a more cost-effective and ethically appealing alternative. As inflation persists, demand elasticity for diamonds becomes evident, with consumers prioritizing fundamental needs over luxury purchases. Currency values significantly influence diamond pricing; a strong USD increases costs for foreign buyers, whereas a weak USD can enhance demand by making diamonds more affordable for international consumers. The worsened global macro-economic conditions have contributed to an 18 to 19 percent year-on-year contraction in CPD exports, highlighting the challenges faced by the industry.

In the United States, fears of a recession coupled with rising inflation have dampened consumer enthusiasm for luxury items, including diamonds. The economic uncertainty has led to a more cautious approach to spending, with many opting to save rather than indulge in non-fundamental goods.

Likewise, China's erratic post-pandemic recovery has influenced consumer behavior, with inflation affecting purchasing decisions, particularly for high-end items like polished diamonds.

Historical data indicates that during economic downturns, luxury spending typically diminishes as consumers adjust to financial constraints. This trend is exacerbated by changing preferences, especially among younger demographics, who are increasingly valuing experiences over material possessions.

Consequently, the diamond market faces a challenging environment, requiring adaptation to shifting consumer priorities amidst ongoing inflationary pressures.

Currency Fluctuations and Trade

Economic fluctuations and inflationary pressures not only affect consumer demand but intersect considerably with currency dynamics, shaping the global diamond market's landscape. Currency fluctuations play a crucial role in determining diamond prices, especially since diamonds are mainly traded in U.S. dollars. A robust U.S. dollar can raise the cost for international buyers, reducing demand. Conversely, a weaker dollar may stimulate foreign purchases, potentially driving prices upward. This exchange volatility demands that industry stakeholders adopt currency hedging strategies to mitigate financial risks. The geopolitical landscapes in major mining regions further complicate the diamond trade, as supply chain complexity increases with international trade dynamics. The downturn in demand from China has affected India's diamond exports significantly, highlighting the need for diversification to reduce dependence on a single market. Identifying patterns such as the Bearish Diamond Formation in currency markets can aid stakeholders in anticipating market shortfalls and making informed financial decisions.

The diamond sector's exposure to exchange rate risks is substantial, given the high volume of transactions in foreign currencies. Effective risk management becomes critical to shield companies from adverse currency movements. Techniques like forward contracts and natural hedging are employed to stabilize financial outcomes and safeguard profit margins. Approximately 75% of industry transactions involve foreign currencies, underscoring the necessary need for robust risk management strategies.

Furthermore, trade policies between major diamond trading hubs like the U.S., India, and China greatly influence the diamond flow across borders. Changes in these policies, along with compliance with trade rules, are crucial for maintaining steady operations and managing market dynamics effectively.

Geopolitical Tensions' Effects

Geopolitical tensions exert a profound influence on the global diamond industry, with recent sanctions on Russian diamonds exemplifying the sector's vulnerability to political strife. The sanctions have led to significant disruptions, as Russia accounts for 28% of global diamond production. This has reduced global supply, increasing market pressure and volatility. Nearly 1,000 foreign companies have imposed self-sanctions, further curtailing their Russian operations and intensifying the impact on the diamond market.

The implications of these sanctions extend beyond supply disruptions. The geopolitical climate, compounded by other events like the Israeli-Palestinian conflict, affects profit stability and market resilience. Economic recessions exacerbate the situation, reducing consumer spending on luxury goods such as diamonds. The pressure on prices, especially polished diamonds, persists despite traditional seasonal demand peaks. Political instability in regions like Taiwan, where tensions with China disrupt global supply chains and trade routes, further complicates the global diamond market, highlighting the need for multinational companies to engage in political discourse for promoting ethical practices. New ISO standards for evaluating smaller polished diamonds are being developed, which aim to enhance market confidence and provide clear guidelines for identification and grading.

India's diamond polishing sector is particularly affected, with exports predicted to hit a decadal low in FY25. The European market is likewise challenged, while China's economic uncertainties drive a renewed interest in alternative investments like gold.

These factors underscore the diamond market's susceptibility to geopolitical tensions and highlight the necessity for the industry to adapt and develop robust strategies to mitigate such challenges.

Future Projections and Strategies

India's diamond polishing sector is confronting significant challenges, necessitating strategic adaptations to navigate its evolving landscape. With a projected decline in demand by 25-27% and a continued drop in revenue, the industry must pivot towards sustainability initiatives and adopt technological advancements to remain competitive. The oversupply of natural diamonds has led to a 10-15% decrease in prices, further underscoring the need for creative strategies to enhance market relevance. Geopolitical and macroeconomic factors have contributed to a decline in diamond demand in China, impacting global markets and necessitating strategic shifts in focus for Indian diamond businesses. The industry stakeholders are expressing concerns over revenue sustainability, highlighting the urgency for Indian diamantaires to respond to these challenges effectively. An increased demand for affordable luxury items has emerged, indicating a shift in consumer preferences that Indian diamond businesses must address. To address these issues, India can focus on the following strategies:

• Invest in Lab-Grown Diamonds (LGDs): With LGDs growing in popularity due to their affordability, India could expand its presence in this segment.
• Enhance Production Efficiency: Implementing technological advancements in diamond cutting and polishing could improve operational efficiencies, reducing costs and wastage.
• Partnerships and Marketing: Collaborate with global brands and engage in educational initiatives to promote the benefits of natural diamonds.

While the U.S. market shows a decline, China's demand offers a glimmer of hope. The potential recovery in China's diamond market, driven by macroeconomic improvements and increased consumer spending, requires India to adapt swiftly to changing consumer preferences and economic conditions. Sustainability and creativity will be pivotal in ensuring a resilient future for India's diamond polishing sector.

Frequently Asked Questions

How Are Small Diamond Businesses in India Coping With the Downturn?

Small diamond businesses in India are implementing market adaptation strategies, such as reducing purchases and enhancing operational efficiency, to cope with the downturn. These efforts demonstrate resilience in maneuvering economic challenges and sustaining business continuity.

What Role Does Technology Play in the Diamond Polishing Process?

In diamond polishing, technology acts as a master sculptor, wielding precision tools like laser microjets and automation. These innovations, akin to a sculptor's chisel, guarantee accuracy and reduce errors, illustrating the automation benefits in enhancing craftsmanship.

Are There Any Government Initiatives to Support the Diamond Industry?

Government policies, including reduced import duties and industry subsidies, support the diamond industry. Initiatives such as taxation reforms, employment allocations, and the expansion of Special Notified Zones aim to improve competitiveness and stimulate growth in the sector.

How Are Diamond Workers' Livelihoods Being Affected in India?

Diamond workers in India face severe challenges, including worker displacement and income instability. Factory closures and reduced production have led to significant job losses, declining wages, and deteriorating working conditions, causing emotional and financial strain among affected individuals.

What Is the Impact of Digital Marketing on Diamond Sales?

E-commerce's boom, akin to a gold rush, has transformed diamond sales, with social media and online marketplaces playing pivotal roles. These platforms improve visibility and accessibility, driving consumer engagement and bolstering market growth in the online age.

Conclusion

The Indian diamond polishing sector faces an unparalleled challenge, with revenues plummeting to decadal lows, exacerbated by shifting consumer preferences and global economic pressures. Meanwhile, China's market remains a guide of resilience, maintaining robust demand. Inventory management and production adjustments become imperative as these dynamics unfold. Strategic foresight is crucial, with an emphasis on innovation and adaptation to navigate this tumultuous landscape. Future projections suggest that diversification and global collaboration could rekindle growth amidst these formidable challenges.

Andrew Wilson

Andrew Wilson is a seasoned writer specializing in the jewellery industry and news. His career began in the newspaper industry, where he honed his reporting skills and developed a keen eye for detail, laying the foundation for his meticulous research in later writing endeavors. Transitioning into marketing, Wilson gained valuable insights into consumer behavior and market trends, enriching his understanding of the jewellery industry when he embraced full-time writing about 15 years ago. In 2019, he discovered a passion for jewellery writing, focusing on market trends and innovative designs. A member of the International Gem Society, Andrew's work is characterized by thorough research and accuracy, offering comprehensive insights into the jewellery world. He occasionally adopts pseudonyms to cater to different audiences and business needs, serving a diverse clientele, including numerous jewellery businesses. Recognized for his unique blend of industry knowledge, research prowess, and engaging writing style, Wilson is dedicated to demystifying the jewellery industry, making it more accessible and understandable to both enthusiasts and professionals.