Industry
Stable Supply, Low Demand
With the mood in the diamond industry improved, dealers are hoping recent stability will be sustained to enable stronger trade as the year progresses.
By Avi Krawitz
Market sentiment was relatively positive in January even though diamond trading
was quiet and dealers maintained an optimistic outlook for the year ahead. Following a difficult year in 2012, members of the trade expect economic conditions will improve as the year progresses and they are pinning their hopes on continued stability in the U.S. and
a resumption of stronger growth in China. However, they recognize the need for patience and don’t expect major changes in the first half of 2013. While many are hoping the Chinese New Year will set the tone for positive diamond trading, there are still mixed messages emanating from the Far East.
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noting that the economy has gained some traction since the lows of the third quarter. But the news wasn’t all optimistic. Chow Tai Fook, considered the world’s largest jeweler with more than 1,800 points of sales across Mainland China, Hong Kong
and Macau, reported that sales grew just 4 percent year on year in the quarter that ended on December 31, 2012, while comparable-store sales fell 8 percent. The company said that the decline resulted from difficult comparisons because the company had registered particularly strong growth the previous year, coupled with a weak jewelry market in Mainland China. In particular, the October 1 National Day Golden Week sales performance was worse than expected, significantly dragging down overall sales, the company explained. But, there is greater enthusiasm for the coming Golden Week over the Chinese New Year that begins
on February 10. Diamond dealers noted steady Far East demand at the beginning of January as retailers placed last-minute orders for the festival but wholesale trading in China slowed in the latter half of the month as the Chinese New Year approached. There is good demand for .30-carat to .50-carat and 1-carat, D-H, VS-SI certified goods, and budget-conscious consumers have also started to look at parcel goods. In addition, there has been stable seasonal demand for noncertified, round, K-M colored stones, which are being sold in promotional pieces.
That demand, although limited, was enough to maintain price stability in the polished market. During the period January 1 to January 21, 2013, the RapNet Diamond Index (RAPI™) for 1-carat diamonds fell a slight .1 percent, while .30-carat stones rose a
modest .7 percent. RAPI for .50-carat diamonds was flat during the period and RAPI
for 3-carat diamonds declined .6 percent. While the trade has turned its attention to the Far East, many are still assessing the
U.S. holiday season, with sales at the larger jewelers not evoking too much confidence. Michael Kowalski, chief executive officer (CEO) of Tiffany & Co., reported that holiday sales were on the low end of expectations, adding that the luxury jeweler is planning conservatively for 2013 “due to uncertainty about general economic conditions in all
our major markets.” Tiffany’s global sales rose 4 percent year on year to $992 million during the
November-December holiday period, while comparable-store sales remained flat.
Sales at Zale Corporation were flat at $567 million for the period, with same-store
sales up 2 percent, and sales at Signet Jewelers rose a more impressive 7 percent to
$1.2 billion, while its same-store sales grew just 3 percent. Mike Barnes, Signet’s CEO, explained that the company experienced broad-based strength across its merchandise offerings in the U.S. led by bridal, branded and exclusive merchandise, colored diamonds, fashion jewelry and watches. However, the level of sales was not enough to stimulate significant restocking by jewelers after the holiday and diamond buying remains cautious and selective. Buyers are not in a rush to replenish inventory and polished suppliers are holding firm on their prices.
In the aftermath of the relatively soft holiday season, dealer trading was relatively
quiet in January and still well below levels seen a year ago. There is a slow but steady flow of new polished coming to the market and sufficient supply, with Indian manufacturing remaining below capacity. During the fourth quarter of 2012, India’s polished exports slumped 19 percent year on year to $3.7 billion, while India’s polished imports fell
49 percent to $1.45 billion. Trading in Antwerp was better than expected, which helped lift the mood during January. However, like India, Belgium continues to post double-digit declines in its polished trade from a year earlier. The country’s polished exports during the fourth quarter dropped
10 percent to $3.21 billion, while polished imports slid 16 percent to $2.88 billion. Both India and Belgium posted significant declines for the full year, with India’s trade numbers reflecting the impact of the new 2 percent duty on polished diamonds introduced in January 2012.
Rough trading was split between good demand for non-De Beers rough, which offered better margins than sight goods, and low trading of De Beers goods. De Beers boxes were selling at very low premiums on the dealer market in advance of the January sight, which took place after press time. Expectations were for a small sight and steady prices to begin the year. Sightholders were more focused on preparing their intention to offer (ITO)
applications for the next sight cycle that begins April 1, 2013. Most have reduced their rough purchasing budgets from a year ago and are hoping that they will be able to garner better margins in 2013 than they had in 2012. There is some concern that rough prices may come under pressure because banks are rumored to be scrutinizing manufacturers more closely and reducing credit facilities that previously enabled those manufacturers to engage in speculative rough buying. For now, at least, manufacturers have sufficient supply to fulfill their manufacturing needs, particularly since buying in the fourth quarter was relatively strong while manufacturing was slow during the November Diwali break. As a result, they are cautious about buying more rough. India’s rough imports rose 31 percent year on year to $4.13 billion in the fourth quarter, its strongest quarter since the rough market peaked in the second quarter of 2011. Similarly, Belgium’s fourth-quarter rough trade rose, with exports up 17 percent to
$3.19 billion and rough imports increasing 18 percent to $3.68 billion. For the full year, India’s rough imports rose 4 percent to $14.99 billion, while Belgium’s rough imports fell 9 percent to $12.25 billion and its rough exports declined 6 percent to $13.52 billion.
Similar to the polished market, rough inventories are relatively full and there is no mad rush for goods. As is common at the start of the year, buyers are getting a feel for prices and experiencing no great urgency to buy. The diamond market appears content to bide its time for now as both the calendar and Chinese New Year get underway. While neither economic nor diamond trading conditions have changed much since the close of 2012, expectations have risen, adding some much needed optimism to the market. Most expect current conditions to extend through the first six months of the year, at which point dealers are hoping that a prolonged period of stability settles in. Whether that will
be enough to stimulate growth in the second half is still anyone’s guess. Article from the Rapaport Magazine - February 2013. To subscribe click here.
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