High prices for rough diamonds and a challenging market is hammering revenue at Sarine Technologies.
The mainboard-listed firm, which makes diamond manufacturing equipment, said it expects third-quarter turnover to be half the US$17.3 million recorded last year.
Sarine Technologies warned in a profit guidance on Thursday night that it is likely to incur an operating loss of about US$1.5 million (S$2.1 million) for the three months to Sept 30, including non-cash expenses of around US$1 million.
Its quarterly recurring revenues are likely to shrink as well, by about one-third year on year, on the back of lower manufacturing activity.
The group said the third quarter had come with "very challenging market conditions", owing to "unsustainable" prices for rough diamonds compared with that of polished ones, and a residual inventory overhang.While rough diamond prices were reduced by an average of 8 to 10 per cent by producers at two recent De Beers and Alrosa industry sales events, the quantities traded remained about 50 per cent lower than usual, it noted.
"Although there has been a significant correction of rough prices, there is still reluctance by both midstream and downstream buyers to replenish stocks as they believe further price adjustments are warranted and may be forthcoming," it said.
As a result, Sarine Technologies expects manufacturing activity to remain subdued for at least the first two months of this quarter, given that the annual Diwali holiday in India occurs early next month as well.
The tough market conditions, coupled with the ongoing issues of limited working capital credit lines, have already caused "a handful of defaults" among its midstream customers, primarily in India.The group, which sold only one piece of equipment during the third quarter, said the liquidation sale of equipment in the second-hand market has created additional pressure on its sales.
But it added that diamond manufacturing activity could trend back to normal from the latter half of this quarter, after Diwali, or in the first quarter next year, "depending on developments in rough diamond pricing and the holiday retail sales".
Sarine Technologies said it is taking steps to reduce costs, while still bringing to market - in line with its long-term plans - what it sees as "future growth products and services".
The group recently launched a new product for small stones and will open its first gemstone processing service centre in Jaipur, India, this quarter as planned.
It said its new products and services will broaden its revenues from the 2016 financial year.
The stock, which has tumbled more than 60 per cent this year, closed 18.5 cents, or 10.6 per cent, down at $1.555 yesterday.