The Zhitong Finance App learned that Fangzheng Securities released a research report saying that according to Tenoris data, US jewelry sales in February were +2.5%, of which cultivating diamond jewelry sales were +33.3% year over year. The growth rate improved from the previous month, and its share in US diamond jewelry increased to 7.4% (+2.1 points year over year, +0.3 points month over month). After the previous wave of price reductions for cultivated diamonds, prices have gradually stabilized since this year, driven by demand. On the demand side, the penetration rate and growth rate of cultivating diamonds in the US, the main consumer country, is still increasing, and the Chinese market is expected to contribute to the increase. Combined with the clear production capacity of some enterprises in the 23-year wave of price cuts, the overall industry supply and demand pattern is expected to improve, which will have a certain supporting effect on price stabilization in this round.

Recommended attention: Power Diamonds (301071.SZ), Yellow River Cyclone (600172.SH), Sifangda (300179.SZ), etc. related to the cultivation of the diamond sector.

Incident: Recently, GJEPC released India's February diamond import and export data, and Tenoris released US diamond and jewelry consumption data for February.

Fangzheng Securities's views are as follows:

Looking at terminal demand, the US is the main consumer of cultivating diamonds. In February, the US was more active in cultivating diamonds.

According to Tenoris data, US jewelry sales in February were +2.5%. Among them, nurtured diamond jewelry sales were +33.3% year over year. The growth rate improved from the previous month, and its share in US diamond jewelry increased to 7.4% (+2.1 points year over year, +0.3 points month over month). Separated according to volume and price, growth was mainly driven by sales volume. Diamond and jewelry sales in February were +42.7%/-5.9% year-on-year ratio. The decline in the price of loose diamonds cultivated in the US market narrowed. Sales volume in February was +31% year-on-year. Among them, the average ASP growth rate was -28%/-1%, respectively. The month-on-month price decline was driven by demand in recent months. Among them, the price decline for small-carat diamonds was quite strong.

India's imports of cultured drills improved dramatically in February, confirming the recovery in demand for cultured drills.

Looking at the industrial chain link, China and the United States are the main producers of drilled drills. Of these, 95% of rough drills go to India for manual polishing, cutting and processing until the export of loose diamonds. Therefore, India's import and export data of cultivated diamonds is an important verification indicator of the prosperity of the industry. According to GJEPC data, in February 2024, India's imports of cultivated drills were US$130 million, +100% year over year. The growth rate continued to improve since December last year; the penetration rate reached 8% (+0.5 points year over year, -4 points month-on-month). India's exports of cultured loose diamonds were US$140 million, +4% over the same period last year. The growth rate fluctuated and improved, with a penetration rate of 8%. India's import and export data verifies a recovery in demand for cultivated diamonds.

Looking at it over time, demand is expected to continue to be released in the future.

The US is the main consumer region for cultured diamonds. As the price difference between cultivated diamonds and natural diamonds widens, consumer approval for cultured diamonds deepened under the US government's endorsement. The penetration rate of cultivated diamonds in the US has increased significantly in the past two years. The penetration rate of the cultured diamond market in China is currently low, but as the price of cultured diamonds has gradually bottomed out, its price segment is more likely to attract potential consumers. Combined with increasing demand for self-indulgence and the successive layout of traditional jewelry brands, it is expected to become an incremental space for cultivating the diamond market in the future.

Furthermore, from the supply-side perspective, production capacity was cleared due to the sharp drop in the price of previously cultivated diamonds.

After previous industry adjustments, WD Lab Grown Diamonds, the second-largest cultivated drill manufacturer in the US, announced bankruptcy in October last year. Some small domestic manufacturers in Henan have cleared their production capacity, leading manufacturers have slowed down their equipment expansion, and the competitive landscape of the industry has been optimized. The price of cultured drills has stabilized, driven by demand in this round, and the bank believes there will be some sustainability during the year.

Risk warning: the risk that the price of cultivated diamonds will continue to fall; the risk of production capacity expansion exceeding expectations; the risk of terminal cultivating diamond jewelry consumption falling short of expectations