The Tide Turns…. Time for positive action!

Sep 30, 2023

My dear friends, I request your kind attention as I strive to update you on a very important development with far reaching positive impact for the entire Diamond industry.

Various industry bodies – GJEPC, BDB, MDMA, SDB, SDA – representing the entire natural diamond manufacturing sector in India – have come together and taken a decision to not import any rough till 15th Dec 2023. Additionally, a review shall happen in the first week of Dec’23 and this self-imposed measure of halting the rough import shall be extended further, if such a need is warranted to support the global diamond trade.

Impact Analysis

This is an extraordinary measure with clear positive results as it immediately & directly corrects the prevalent imbalance in Demand & Supply for the natural Diamond industry.

Let us look at the various facets through which it achieves immediate and direct results:

The ongoing downsizing of the midstream inventory – now fast tracked by this measure

The degrowth trend in demand for C&P diamonds from the global retail industry started in April – June 2022 with a clear focus on bringing down the inventory at retail store level. As the midstream (C&P manufacturing) saw a decline in sales, it also started adjusting accordingly from August 2022 onwards, gradually reducing the polishing capacity utilization, while this has helped prevent high overstocking of C&P in the midstream but the demand from the retailers fell even more than the reduction in the midstream polishing output and hence it has had a knockdown effect on C&P prices.

As yesterday’s measure completely stops the rough import in India – where 95% cutting and polishing happens – it creates a complete change from the current situation of oversupply to immediately balancing the future inventory leading to price support and sustainably balanced C&P output.

The Retail end – already balanced – now to be supported by firm prices

The global retail industry has done a tremendous job of achieving extremely low inventory levels over the past 18 months as they have been replenishing & procuring much lesser than their end consumer C&P sales, thus vastly bringing down their inventory levels. The clear inference from GJEPC data for C&P exports from India is that the current C&P exports are at an almost 40% decline compared to FY 2021-22 levels, while the global retail sales of Diamond Jewelry is nowhere near such declines compared to FY 2021-22 levels. Amongst various developed markets, the comparative change of current Diamond Jewelry retail sales over FY 2021-22 is ranging from flat (0% change) to -10 % (source: individual company statistics).

This clearly indicates that while the end consumer retails sales have been holding up well, procurement levels from midstream were drastically reduced leading to a massive retail industry inventory reduction achievement and hence retail inventory levels are in an overcorrection territory as we get into the holiday season.

As the additional rough intake by midstream gets curtailed immediately, the polished goods‘ supply also gets curtailed giving prices an immediate support, and the retailers can confidently replenish their inventory for the holiday season. The retail sales of diamond jewelry during the holiday season is going to further lighten up the overall polished goods pipeline thus creating a sustainable, healthy and lasting support to the polished prices. This shall give further boost to the end consumer demand even beyond the holiday season.

Today’s Strong measure – Securing a sustainable future

History has shown us that when any crisis comes along, and it becomes too disruptive for an entire industry – one of the two things happen – either the industry players panic and those sectors get on a long term painful decline OR everyone in that sector comes together and reinvents the sector. The instances of an entire sector coming together are very difficult to achieve and hence rare in occurrence, but whenever it happens, it is ALWAYS SUCCESSFUL!!

We, in the natural diamond industry know and we have shown each other that whenever we are able to achieve a collective positive action – like the way industry did at the peak of COVID-19 pandemic in April’20 – we  come out stronger and more successful.

Now, since a strong measure has been put in place, we need to work together – with positive mind-set and coordination. Natural Diamonds are not just a commodity – they have a great legacy & a special everlasting appeal – they possess an unparalleled aspirational value through the work of centuries behind them – we have to now ensure that we enhance this aspirational value of our product by doing whatever it takes.

Summary – Immediate Actionable

Natural Diamond current prices offer tremendous value as the long correction over the last eighteen months have led to this unique & desirable product being made available at a compelling value proposition for the end consumers while the other discretionary products which don’t even retain their value have become supremely expensive. Retailers will be able to smartly use this compelling value proposition in Natural Diamond to create new demand across all product price points for their end consumers.

Hence the focus and immediate action on sourcing of polished goods becomes very important as we already see that specific in-demand polished goods have been in short supply even before the adoption of yesterday’s strong measures of supply curtailment. Thus, looking at the holiday season and curtailed supplies going ahead, the midstream is well poised right now to support the retail segment by offering natural diamonds at current attractive prices and we clearly see an immediate demand offtake for the polished goods. We, at KIRAN like always, are ready to support the demand across all arrays and look forward to collaborating with our clients in all forms.

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