The 10 per cent additional tariff levied by the US, which accounts for nearly a third of Indian natural diamond exports, will exacerbate the impact on Indian diamantaires.
The moves on the back of already-subdued demand and intensifying competition from lab-grown diamonds, which closely resemble natural diamonds and cost much less, said Crisil Ratings report.
In the milieu, export revenues of diamantaires will decline 8-10 per cent in fiscal 2026, it added. That said, calibrated inventory management across the value chain will support realisations, thus helping reduce the decline in export revenues, and limit the erosion of operating margins.
A Crisil Ratings analysis of 43 diamantaires, accounting for nearly one-fourth of the industry revenues, indicates as much. Last fiscal, the export volumes of natural diamonds remained constrained by lower demand from China and competition from LGD in the US.
Although polishers pushed sales in the fourth quarter to avoid tariffs and price erosion was limited, revenues from natural diamond exports fell 17 per cent to $13.3 billion.
Senior Director, Crisil Ratings said the natural diamond realisations this fiscal are poised to rebound 3-4 per cent amid limited inventory across the value chain as diamantaires are aligning their rough purchases with visibility in sales of polished diamonds. Additionally, production cuts by miners will curtail price erosion.
In contrast, LGD prices may reduce from a tenth of the price of natural diamonds last fiscal to a twelfth in the current fiscal, resulting in a wider price gap between natural diamonds and LGD, said the report.
The rising price gap, in turn, could shave a further 12-14 per cent off natural diamond export volumes, marking third consecutive year of weak demand after an aggregate degrowth of 32 per cent in the last two fiscals, said Crisil Ratings.
This will make it difficult for the natural diamond polishers to pass on any tariff-led price hikes to customers.
Director, Crisil Ratings said natural diamond polishers, traditionally operating at thin margins of 4-5 per cent will have limited ability to absorb the tariff-induced price rise.
As a result, miners and retailers may need to step in to absorb some of the price shocks. Consequently, Crisil believes the operating margins of polishers may dip 20-30 basis points to 4.3-4.5 per cent this fiscal.
Slowing demand for natural diamonds in key geographies, intensifying competition from LGDs, potential revisions in tariffs and rising geopolitical tensions will bear watching.
