Thursday, September 21, 2023

Diamantaires risk losing a fifth of their revenues as roughs get more expensive

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  • US sanctions against Russia diamond mining company Alrosaafter the invasion of Ukraine, the supply of rough diamonds has decreased by almost 30%.
  • The state-owned Alrosa is the largest diamond producer in the world and India is the world’s largest diamond cutting and polishing center.
  • However, with resource constraints, diamonds are expected to lose their luster and fall 15-20% in revenues in India, according to a report from CRISIL.

The war in Ukraine has affected the mining of rough diamonds around the world. Although most of this precious resource comes from the mines of Russia, it is polished in Mumbai and Surat. Diamantaires, who give the world’s diamonds their shine in India, now have reason to worry.

According to a report by rating agency CRISIL, India’s diamond industry expects revenue to fall 15-20% to $19-20 billion this fiscal year.

The largest diamond polishing center in the world, India, witnesses a decline in sales

After the invasion of Ukraine, the US government has
executive order a ban on imports of certain products originating in Russia, including diamonds.

The ban is aimed directly at Alrosa, which has been designated by the US government as the world’s largest diamond mining company.

Government-owned Alrosa is responsible for 90% of Russia’s diamond mining capacity and accounts for 28% – nearly a third of global diamond production.

In addition, major buyers in the US and EU markets have been pushing for certificates of origin. As a result, roughage prices have risen by almost 30% since the start of this fiscal year.

Apart from that, an increase in Covid-19 cases has led to lockdowns in several regions in China, which is one of the largest importers of Indian polished diamonds.

In addition, inflation and opening up other options for discretionary spending, such as travel and hospitality, will dampen demand growth in the US and Europe in the near term, the report said.

“While volatility in rough diamond prices is typically passed on to polished diamond prices – albeit with a delay due to the long business cycle in the trade – lukewarm demand has caused polished diamond prices this time to exceed rough prices. have not fully caught up. This could push the operating profitability of Indian diamond cutters by 75-100 basis points to 4-4.25% this fiscal year. Accordingly, interest coverage may weaken marginally,” said Subodh Rai, Chief Ratings Officer, CRISIL Ratings.

Despite several ups and downs, there is one thing diamond merchants should cherish. Customer payments are on time and this, along with reduced inventory, will keep reliance on external debt in check.

“As a result, total external liabilities to material assets for the sector will remain below 1.5 times, keeping players’ credit risk profiles stable,” Rai said.

During the last holiday season, as Indian consumers began to step out and retaliate, diamond merchants stockpiled rough diamonds.

While polished diamond exports grew about 48% last year, rough diamond imports grew nearly 74%, accounting for nearly 40% of imports in the last quarter.

This hoarded inventory build-up was later corrected in the first quarter of the current fiscal year, following the start of the Russia-Ukraine war and disruptions in the Chinese market due to new strains of Covid-19.

The lack of availability of rough diamonds in India has led to a new trend. There is now a greater demand for lab-made stones.

“The rising prices and scarce supply of natural diamonds have also led to a growing shift in consumer interest towards lab-grown diamonds, which resemble natural diamonds and are 50-60% cheaper to start up, providing growth opportunities. offers in a price sensitive market. The market share of lab-grown diamonds is estimated to have grown to around 8% today, from less than 3% two years ago,” said Rahul Guha, director of CRISIL Ratings.

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