India’s cuts to polished production have impacted inventories in different ways. Diamond manufacturers in India have — to the best of their ability — focused their efforts on goods that are in demand during the recent production slowdown. This has created supply gaps in certain areas.
A case in point is the D-color, flawless category. Demand for these diamonds has been weak for around a year, mainly because of the slowdown in China, the main market for this product. Unlike stones in the VS to SI range, this is not a standard US item. Southern India and central Europe show some demand for it, but these do not compensate for China. The D-flawless is also popular in small southeast Asian countries such as Vietnam and Cambodia, though these markets have slowed recently, dealers said.
The graph below shows the change in RapNet inventory levels in percentage terms for three chosen categories in the 1-carat size since the start of July 2024. It includes RapSpec A3 and better goods. Stock levels for D-flawlesses (including internally flawless) fell sharply. G, VS1 goods declined slightly, and I SI2s increased, as manufacturers continued to produce in line with US demand.
Manufacturers’ attempts to tailor production to demand have been gradual. While demand for D-flawlesses has been weak for a year, only in the last few months has inventory on RapNet slumped. The sharp drop earlier this month — reflecting India’s shutdown for Diwali, when factories closed for three to four weeks — was more noticeable than for the other categories. (Most factories are reopening this week.)
There are at least two reasons for the lag. Many manufacturers are slow to respond to changes in demand, especially the smaller companies with weak mechanisms for tracking diamond valuations. In addition, the production cycle can be long, spanning up to three months from making the decision to buy rough to having the final polished available to sell.
Not that the market is seeing shortages at present. “Reflecting the current market trends, I think these are the correct inventory levels,” said Rishi Mundra, managing director of Hong Kong-based diamond manufacturer and trader Stellar Group HK. “The hope is that demand slowly picks up, and because inventory levels are relatively low, that price stabilizes and hopefully there’s a pickup in prices.”
Image: Diamond manufacturers in Surat, India. (Shutterstock)
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