Struggling Diamond Exporters in Fiscal 2026: Calibrated Inventory Management is the Key
Decline in Diamond Exports Expected by 10% in FY26 Due to US Tariff, According to Crisil - Potential Benefits for the Sector Revealed
Get ready for some tough times in the diamond trade industry, folks! With the US administration implementing a 10% additional tax on natural diamonds, about a third of India's diamond exports are at stake. This tax hike, combined with already-subdued demand and increasing competition from lab-grown diamonds, is projected to knock down the export revenues of diamantaires by around 8-10% in fiscal 2026, according to Crisil Ratings.
However, there's a silver lining—calibrated inventory management across the value chain can lend support to realizations and help reduce the decline in export revenues. This, in turn, can mitigate the erosion of operating margins, protect financial leverage, and maintain credit metrics among players.
To arrive at this conclusion, Crisil analyzed 43 diamantaires, accounting for nearly one-fourth of the industry's revenue.
Last fiscal year, in 2025, the export volumes of natural diamonds were capped due to lower demand from China and competition from lab-grown diamonds in the US. Despite efforts made by polishers to push sales during the fourth quarter to avoid tariffs, and limited price erosion, revenues from natural diamond exports dropped by 17% to around $13.3 million.
Rahul Guha, Senior Director at Crisil Ratings, shared some insights, stating, "This fiscal, realisations on natural diamonds will likely rebound 3-4% amid limited inventory across the value chain. Diamantaires are adjusting their rough purchases to match sales of polished diamonds, thereby avoiding excessive stockpiling. Additionally, production cuts by miners will halt further price erosion."
While this might sound promising, the anticipated surge in the price gap between natural diamonds and lab-grown diamonds could lead to a further 12-14% decline in natural diamond exports. This paints a picture of the third consecutive year of weak demand for natural diamonds, following a massive 32% decrease in the last two fiscals.
Natural diamond polishers, operating on meager margins of 4-5%, will struggle to absorb price hikes resulting from tariffs. Under such circumstances, miners and retailers could take it upon themselves to absorb some of the price shocks. Consequently, the operating margins of polishers might dip 20-30 basis points to 4.3-4.5% this fiscal.
The overall credit profiles of these diamantaires could experience some working capital relief, as weak demand would lead to a 5-7% reduction in inventory levels across the value chain. This will lower the need for debt-funded working capital, although receivables from export customers will remain a watchful concern in the face of tepid demand, geopolitical issues, and global uncertainties.
Crisil's key monitorables for the segment include the slowing demand for natural diamonds in key geographies, intensifying competition from lab-grown diamonds, potential tariff revisions, and emerging geopolitical tensions. But here's hoping for resilience and strategic maneuvering within the industry to tackle these challenges head-on!
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- The diamond industry is set to face hardship due to a 10% additional tax on natural diamonds by the US administration, which threatens about a third of India's diamond exports.
- Calibrated inventory management across the value chain has the potential to support realizations and mitigate the decline in export revenues, thereby protecting financial leverage among diamantaires.
- In fiscal 2025, the export volumes of natural diamonds were reduced due to lower demand from China and competition from lab-grown diamonds in the US, causing a 17% drop in revenue.
- Analysts predict a 3-4% rebound in realizations on natural diamonds this fiscal year, but a potential surge in the price gap between natural and lab-grown diamonds could lead to a further 12-14% decline in natural diamond exports.
- Under the expected price hikes resulting from tariffs, natural diamond polishers, operating on meager margins, may not be able to absorb the costs and could see a dip in their operating margins.
- To stay up-to-date on the latest developments impacting the diamond industry, monitor changes in US administration policies, demands in key geographies, competition from lab-grown diamonds, potential tariff revisions, and geopolitical tensions.
- In light of these challenges, it's essential to maintain a strategic focus on calibrated inventory management, monitoring key indicators, and pursuing prudent finance practices to protect wealth management and ensure the long-term success of your personal-finance and business interests.
