The world’s largest manufacturing center is relatively upbeat about the domestic jewelry market ahead of Diwali, but it is less optimistic about global prospects.
When demand slides, India’s diamond industry faces its fair share of challenges. As the largest manufacturing center, accounting for an estimated 90% of global polished goods, it is the market maker: How it buys rough and sells polished sets the tone for the rest of the trade. With both rough supply and polished demand declining in recent months, diamond cutters are navigating a complex market dynamic.
Geopolitical uncertainty, a slowdown in China due to its strict Covid-19 policies, and the seasonal summer lull in the US and Europe have led to a softening in appetites for diamonds. Meanwhile, when Russian production dropped out of the market around March, volume fell.
These forces have balanced each other out to some extent. If polished demand were as robust as a year ago, there would be more severe shortages, which would support polished prices, many have observed. Instead, prices have weakened, and there are still large quantities of polished inventory available.
The number of stones on RapNet remained high at nearly 1.9 million on September 1, up 16% from a year ago. Prices consequently declined as the market waned. The RapNet Diamond Index (RAPI™) for 1-carat diamonds fell 3.6% in August, following a 2.6% drop in July.
China and the US
Nonetheless, the Indian trade is calm about its prospects for the rest of 2022. This was evident in conversations Rapaport had during a recent visit to Mumbai and Surat, attending the India International Jewellery Show in early August.
For manufacturers, the biggest factor behind the downturn has been the slump in China, which still maintains restrictions related to Covid-19. Considering the quarantine requirements for international travelers, suppliers are unwilling to visit the country, and Chinese buyers are not on the international circuit. The same applies to Hong Kong, although the precautions there are not as stringent and are gradually easing.
China’s retail sector has also slowed. Recent updates from Chow Tai Fook and Luk Fook, two of the largest jewelers in the region, revealed that their same-store sales on the mainland had plunged 19% and 28%, respectively, during the quarter that ended June 30. As a result, these high-volume buyers have significantly curtailed their orders.
Indian suppliers are naturally keeping a close watch on the US, their largest market, amid all the recession and inflation talk. But even as they report an overall dip in orders, the US has remained steady — even if trading there does not match last year’s bumper levels.
US retail has weakened, with Signet Jewelers, the country’s largest specialty jeweler, lowering its full-year outlook. The company expects revenue of $1.75 billion in the second fiscal quarter, which ended July 31 — 2.1% less than last year, according to Rapaport records.
“We saw sales soften in July, as our customers have been increasingly impacted by rapid inflation, so we’re revising guidance to align with these trends,” CEO Gina Drosos said at the beginning of August.
The large manufacturers are concerned about the drop in US orders during the current quarter. But the US continues to support the market, and there is some hope it will stabilize for the holiday season.
Changes in India
For now, India is focusing on the domestic arena as it heads into the wedding and festive season. While the cost of living has risen — with inflation at around 7% in June and the Reserve Bank of India’s interest rate at 5.4%, a return to pre-pandemic levels — sentiment remains upbeat among jewelers.
The recent India International Jewellery Show (IIJS), which took place from August 4 to 8, saw encouraging foot traffic and record visitor numbers, according to the Gem & Jewellery Export Promotion Council (GJEPC), which organizes the show. There were significant orders for gold and rising interest in diamond jewelry amid continued shifts in cultural taste.
The move toward less heavy jewelry in India accelerated during Covid-19, with IIJS vendors displaying more lightweight pieces and delicate designs featuring diamonds. For example, fewer women are wearing the traditional gold mangalsutra — a necklace presented to brides at Hindu weddings and worn throughout the marriage. While they might use it during the ceremony, they often switch to a lighter diamond pendant for everyday wear to express their matrimonial commitment.
Jewelry retail is robust in India: Economic growth is projected to stay above 7% in 2022, while gross domestic product (GDP) rose 8.9% in 2021, according to the World Bank. The Reserve Bank of India has noted that consumer confidence continues to rise. Sales at Titan Company, India’s largest branded jeweler, nearly tripled to INR 83.51 billion ($1.05 billion) in the first fiscal quarter, which ended June 30, from INR 30.5 billion ($383.2 million) the year before.
Jewelers are optimistic for Diwali — which falls on October 24 this year — and the wedding season, which extends through April. That has given the rest of the trade a lift, even if the local market constitutes a small proportion of polished supply. India accounts for about 6% of global diamond jewelry sales, according to De Beers. It seems set to take some market share from China; the latter has slid, while India has continued its recovery in 2022.
Shift to larger sizes
Overall, manufacturers estimate that their orders are down about 5% to 10% from last year, but still above pre-pandemic levels. India’s polished exports were flat at $6.27 billion in the second quarter, according to the latest data from the GJEPC. The figures for July declined 13%.