The sharp fall in rough diamond supplies from Russia due to economic sanctions has boosted demand for cheap lab-grown diamonds.
Rahul Guha, Director, Crisil Ratings, said rising natural diamond prices amind short supplies have fast-tracked shift in consumer interest to lab-grown diamonds, which are 50-60 per cent cheaper.
The market share of lab-grown diamonds is estimated to have expanded to about 8 per cent presently from less than 3 per cent two years ago, he said.
US sanctions on Russia
The US sanctions on Russian diamond mining company Alrosa following the invasion of Ukraine has cut rough diamond supplies by almost 30 per cent.
The State-owned company is the largest diamond producer globally and the supply constraint is expected to continue in the near future. This apart, the key buyers in the US and EU are insisting on certificates of origin resulting in prices shooting up by almost 30 per cent in last four months.
Subodh Rai, Chief Ratings Officer, Crisil Ratings, said while the price volatility is passed on through the polished diamond, the tepid demand has kept polished prices from fully catching up with rough prices this time around.
This could squeeze the operating profit of Indian diamond polishers by 75-100 basis points to 4-4.25 per cent this fiscal, he said.
Revenue to dip
Diamond industry revenue is set to reduce by 15-20 per cent to $20 billion this fiscal against last fiscal, following a double blow from falling demand and rising prices of roughs across the globe.
A surge in Covid cases has led to lockdown in several regions in China, one of the largest consumers of Indian polished diamonds.
The pent-up demand and strong festival season saw Indian diamantaires stocking up on rough diamonds in the second half of the last fiscal. While the polished exports grew 48 per cent on-year last fiscal, rough diamond imports were up 74 per cent, with almost 40 per cent registered in the March quarter.
The huge inventory build-up was corrected in the first quarter of this fiscal, following the onset of the Russia-Ukraine war at the fag-end of last fiscal and disruptions in the Chinese market because of new variants of Covid.