2023: A rough year when natural diamonds lost their sparkle – By Sakshi Suneja After shining brightly during CY2021-22, exports of cut and polished diamonds (CPDs) lost their sheen in CY2023. In 10M CY2023, India exported $15.3 billion worth of natural diamonds, a whopping YoY decline of 25%. The contraction in exports was largely volume-driven, as reflected by 20% YoY reduction in volumes due to the weak underlying demand conditions in key consuming nations mainly, the US, Europe, and China. These nations collectively account for ~80% of the global CPD demand. Expecting the contraction in exports to continue in the near term, ICRA in September 2023, revised its business outlook on the CPD sector to Negative from Stable. Beside shrinking sales, CPD players are also facing profitability pressures. The average prices of rough diamonds during 10M CY2023 remained higher by 6% from the 15-year median level, though some softening has been seen in recent months. Continued constrained supply of roughs from Alrosa PJSC – Russia-owned diamond mining entity, (which supplies ~30% of the rough diamonds globally), following the US sanctions and no major ramp-up in mining output by other mining companies, have kept rough prices elevated. The prices of polished diamonds, on the other hand, have been sliding since March 2022 amid subdued demand. They are currently trading lower by 23% from the 15-year median level. These in turn have led to shrinking spreads between polished and rough prices, translating into profitability pressures for CPD exporters. Going forward, H1 CY2024 is expected to remain muted for the industry, though some YoY improvement in demand is expected to trickle in from H2 CY2024 onwards with a slight pick-up in economic conditions. Any recovery in demand for diamonds in China, especially during the Chinese New Year in Q1 CY2024, could limit a further slide in polished diamond prices and would be a key monitorable. From the credit point of view, the key monitorable for the industry would be inventory management. Faced with declining sales and profitability pressures, inventory levels have risen in CY2023, though they remain lower than the pre-pandemic levels. The CPD players have been cautious in managing their working capital cycle so far to control their dependence on bank debt, a lesson perhaps learnt from the previous demand slowdown seen in CY2019. The players have not been stockpiling roughs, in the absence of visible offtake of polished diamonds. Some relaxations have also been provided by miners in the form of deferment of part of purchases by CPD players to the next year, instead of mandatory purchase of the allocated quantum of roughs. Furthermore, receipt of payments from customers have been timely so far. This has helped arrest the weakening in credit metrics of CPD players. However, if the slowdown in demand from key consuming nations and unfavourable polished-rough price differential persist in CY2024, the credit profile of many CPD players would weaken further in ICRA’s view, regardless of their prudent working capital management. (Sakshi Suneja is the Vice President, Sector Head-Corporate Ratings at ICRA Ltd.) (Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.)
If the current trend continues for a longer period of time, not only oil mills but oilseeds growers will also not be able to get good rates of their produce, says Samir Shah, president of Gujarat State Edible Oils and Oil Seeds Association (GEOA). Shah who is also past president of SOMA says that due to various international factors rates of edible oils had gone up considerably, especially imported oils earlier this year.
“With a view to curb rising prices of edible oil, the Government of India reduced import duty on edible oils. Considering the fact that India is producing hardly 30 percent of its edible oil requirement, the decision was right at that point of time. Now when international prices of edible oils have gone down by 15 percent to 25 percent and high production period has started in edible oil exporting countries, the government should gradually increase import duty to protect local oil mills and oilseeds growers,” said Shah. GEOA has also made representation before Union Minister for Commerce & Consumer Affairs, Piyush Goyal to increase import duty.
In June import duty on edible oils was ranging from 35 to 55 percent, since then the government gradually reduced import duty and at present it is ranging from zero percent to 15 percent on different edible oils, he said.
Just a month back prices of edible oils were through the roof and the government took appropriate measures by reducing import duty in order to protect consumers, says Atul Chaturvedi, president of Solvent Extractors Association of India (SEA). “Prices of edible oils are coming down globally. Kharif sowing has already started across the country. In the interest of local farmers, it is high time to enhance import duty in a phased manner to encourage local edible oil value chain,” opined Chaturvedi.
On Thursday imported Palm oil prices were at around Rs 2100 per 15 kg as against local Rs 2700 and Rs 2550 of groundnut and cottonseed oils. Prices of other local oils including ricebran, coconut, soyabean and mustard remained as high as Rs 2350, Rs 2520, Rs 2500 and Rs 2580 respectively.
India imports around 13-13.5 million tonnes of edible oils, of which around 8-8.5 million tonnes (around 63 per cent) are palm oil. Though the price of other imported Sunflower oil remained at around Rs 2700 per 15 kg, but import quantity of the oil is much lower than that of palm oil.