No shine in Surat diamond industry this Christmas, thanks to bad US economy

Festive orders, sales in December down by 15-20% over last year

Layoffs by tech majors and rising interest rates in the United States have taken a toll on Christmas season exports by India’s cut & polished diamond industry this year.

Led by the country’s largest cut-&-polished diamond cluster in Surat, Gujarat, where roughly nine out of 10 of the world's diamonds are polished, the industry has been hot by a 15-20 per cent dip in post-thanksgiving orders and sales from the US.

The numbers for premium diamonds weighing one carat and upwards are worse, with orders and sales down by at least 25 per cent.

Having just returned from a business trip to the US, Ashok Gajera, managing director, Laxmi Diamond Pvt Ltd, which has operations in Surat and Mumbai, said diamonds and jewellery retailers in the US are becoming cautious and are simply refusing to stock up, causing a dip in orders and sales around the upcoming Christmas season.

“The US is not accepting recession but the demand for luxury goods, especially diamond jewellery is down 15-20 per cent. Online sales in the US were up a marginal two per cent due to Black Friday and Thanksgiving. But after that, the usual orders for December leading up to the Christmas season are down,” said Gajera.

Concurring with Gajera, Gems & Jewellery Export Promotion Council (GJEPC) chairman Vipul Shah attributed the trend to recessionary sentiments among consumers in the US.

“The mass layoffs at several major tech firms, coupled with rising interest rates have dampened the Christmas spirit, at least for gems & jewellery, and predominantly for diamond jewellery,” Shah told Business Standard.

What this means for India's gems & jewellery sector, especially cut & polished diamond exports, is that annual exports by the end of financial year 2022-23 could go completely off track. This is because the US accounts for 45-50 per cent of exports, followed by China and the Far East (30 per cent), rest of Asia, Middle East, and Europe.

"The industry had a good run till November as Thanksgiving orders in the US were great. Now with retailers becoming wary due to tech layoffs and rising interest rates, the remaining months could be slower," Shah added.

GJEPC data shows the overall gross exports of gems & jewellery for April-November 2022 at Rs 2,08,039.06 crore, up by 8.26 per cent year-on-year (YoY) over Rs 1,92,161.85 crore for the same period the previous year.

Exports of cut & polished diamonds for the April-November 2022 period stood at Rs 1,21,602.56 crore, up a mere one per cent over Rs 1,20,395.56 crore a year ago. However, in dollar terms, they have already dipped 5.43 per cent during the first eight months of FY23, to $15,355.09 million from $16,236.19 million a year ago.

On the other hand, rough diamond imports for April-November 2022 period have grown by 8.10 per cent YoY to Rs 92,541.43 crore, from Rs 85,604.93 crore in April-November 2021.

The mismatch in rough diamond imports and cut & polished diamond exports is also accentuated by a pricing disparity that has impacted the margins of diamond polishers, according to Kirti Shah, one of Surat's leading diamantaires.

“The Russia-Ukraine conflict has not only impacted rough diamond supply globally but has also led to a jump in prices by anywhere between 40 per cent and 70 per cent in 2022, with a 7-10 per cent fall in recent weeks. On the other hand, the US recession, coupled with sanctions on Russian-sourced diamonds, has not only impacted orders but has also caused a drop in polished diamond prices by 25 per cent which is denting our margins,” Shah added.

Going forward, the industry is pinning its hopes on China, which is now gradually reopening after several months of a zero-Covid policy and lockdowns.