The diamond industry, particularly the Indian sector, has recently faced significant challenges, leading to the closure of 70 Indian diamond trading offices in Hong Kong over the past six months. The primary reason for this downturn is a shift among Chinese buyers towards pure gold jewelry as a safer store of wealth, especially as polished diamond prices have plummeted by over 40% in the past three years.
Economic Shift in China
According to the China Gold Association, gold jewelry sales surged by 7.97% in 2023, reaching 706.48 tons, driven by innovative and lightweight designs. Additionally, Swiss trade data indicates that demand for gold in China continued to soar in the lead-up to the 2024 Lunar New Year, with Swiss gold exports to China reaching a seven-year high in the first quarter of 2024.
Impact on the Diamond Industry
This crisis is considered even more severe than the global economic recession of 2008. Surat, the world’s largest diamond cutting and polishing center, exports diamonds to markets such as Hong Kong, Dubai, Antwerp, and the United States. However, with the economic downturn, over 70 diamond trading offices in Hong Kong have shut down—an unprecedented event in the industry’s history. The shift in Chinese consumer preferences from diamonds to gold has been a major factor, driven by the steady rise in gold prices and the sharp decline in polished diamond prices.
Challenges and Industry Response
Dinesh Navadia, President of the Indian Diamond Association, stated that the diamond industry has been struggling for the past three years. With the drop in diamond prices, demand has dwindled, forcing traders to close their Hong Kong operations. Approximately 350 diamond traders and their families, including those from Surat and Palanpur, have been residing in Hong Kong. Many are now considering a return to Surat or Mumbai due to the unsustainable costs of living and operating in Hong Kong.
Market Outlook
Since the onset of the pandemic, demand for natural diamonds in China has reportedly decreased by up to 60%. The ongoing conflicts, such as the Russia-Ukraine war and the Israel-Hamas-Palestine situation, have further diminished diamond demand in key markets like the United States, severely impacting the diamond sectors in Surat and Mumbai. Although rough diamond prices have risen over the past three years, polished diamond prices have seen a significant drop of 30% to 45%.
Conclusion
The global diamond market continues to face challenges, with the economic downturn exacerbating the situation. The industry is likely to remain in a slump for the foreseeable future, and stakeholders may need to brace for an extended period of market bottoming.
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