Nirav Modi scam hits rough diamonds

Chennai: Global rough diamond sales is expected to decline 25 per cent in 2019, thanks to the challenging situation in India’s financial sector among other factors, finds a global study.

The study by Bain and Company and Antwerp World Diamond Centre found that the surplus production in 2017, the financial situation in Indian diamond industry, — the largest processor of roughs — and the slackening demand for polished stones in the US and China led to the slower demand in 2019.

Polished diamond sales too are expected to drop 10 per cent and 15 per cent by the end of 2019 because of the slowing demand for the diamond jewellery globally, lower diamond content in jewellery designs, inventory optimisation by major retailers and declining availability of finance for midstream players in India.

AWDC CEO Ari Epstein claims that the diamond market remains cautious due to the oversupply of rough diamonds, challenging situation in India.

The Indian diamond processing companies have been finding it difficult to avail finance from the formal banking sector since the Nirav Modi-PNB scam. The import of roughs by India was down 21 per cent between April and October this year.

According to the report, the spike in production of  rough diamonds in 2017 —  the largest single-year volume increase since 1986 — too has contributed to the oversupply. This has “created a surplus that affected the entire value chain”, as a result of which inventory in the mining and midstream markets increased through 2019.

Further, the demand for polished and in turn rough is driven by changes in the two largest markets, the United States and China, due to decreasing consumer confidence and geopolitical uncertainty.

In 2019, the US diamond jewellery retail sales are expected to fall two per cent, in contrast to three per cent growth in 2018 as consumer confidence fell to its lowest point since 2016 because of uncertainties surrounding the labour market, trade tension and a possible recession.

A continuous decline in Chinese travelers to the US lowered luxury purchases overall as well as an extra 15 per cent tariff on Chinese jewellery went into effect in September 2019 and is expected to impact sales during the crucial holiday season.

The Chinese demand too is expected to decrease by five per cent due to yuan depreciation, declining consumer confidence due to trade tensions between the US and China and  significantly lower sales in Hong Kong amid protests in the area.

“All signs now point toward the gradual reestablishment of a balance in the market in the coming year,” said Mr Epstein.