Diamond value chain under pressure

Diamond Value Chain
[Image Courtesy: New York Times, Francois Lenoir, Reuters]

The diamond value chain, especially mid-stream, is currently under tremendous pressure due to unfavorable market conditions. Surat – India’s diamond hub that accounts for almost 85% of diamonds cut and polished worldwide by volume is witnessing a slump. Small diamond cutting and polishing units in Surat have cut production by up to 50%.

 

Out of total 4,000 diamond cutting and polishing centers in Surat, around 500 units have not reopened after summer vacation ended. From the ones that have reopened, smaller ones having less than 20 emery wheels have shut down even up to 80% of their machines and those having less than 15 emery wheels have shut almost half their wheels.

 

While the prices of rough diamonds have increased considerably, Polished diamond prices have dropped around 15% and for the smaller sizes even up to 25% since start of the year. This has resulted in profit margins for the mid-stream to squeeze and come under high pressure.

 

While the jewelry retail sales in US continue to remain strong, economic slowdown in China and Hong Kong have weakened demand. Besides tight liquidity position in India has also compounded the problem. Moreover, the ongoing trade war between US and China has also made scenario uncertain with possibility of increase in tariffs on jewelry products. This is also reflected in the weak diamond trading during JCK show, with traders wary of adding further inventory and retailers taking goods on memo. Stones below 0.5 carats are apparently in excess supply.

 

Weak diamond demand has also affected Botswana’s growth. Even diamond miners have not been spared. Angolan diamond miner – Endiama, lost its exploration license due to burgeoning debts it was not able to manage. Even large diamond miners like Alrosa and De Beers are carefully scaling down production in line with lower rough diamond demand. This situation may not reverse any time soon. On the contrary, it may worsen in the coming months.

 

Martin Rapaport said “If the trade does not change its business practices and adapt to new realities, the diamond industry will suffer ‘extreme financial and regulatory disruption’.”

 

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