Industry
A Waiting Game
Polished buyers and suppliers were prepared to wait out the quiet August and market uncertainty, hoping conditions improve as the fourth-quarter holiday season approaches.
By Avi Krawitz
Polished diamond prices were basically stable in August as the India International Jewellery Show (IIJS) failed to inspire a spike in demand. If anything, buyers remained cautious as economic growth in emerging markets has slowed, with the Indian rupee weighing on India’s domestic market. Trading levels were low with Belgian and Israeli dealers on vacation during the beginning of the month. However, suppliers were somewhat relieved that prices stabilized and eased the downtrend that was evident in July. The RapNet Diamond Index (RAPI) for 1-carat certified polished diamonds fell .1 percent during the period August 1 to August 26. RAPI for both .30-carat diamonds and .50-carat diamonds increased by the same margin of .5 percent. RAPI for 3-carat diamonds also declined a slight .1 percent.
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Still, India was the largest market for gold jewelry in the second quarter of 2013 as demand grew 33 percent year on year to $8.55 billion, according to WGC’s quarterly report on gold demand trends. China’s gold jewelry demand rose 35 percent to $6.95 billion to rank as the second-largest market. WGC explained that demand in India and China during the second quarter was driven by opportunistic buying from consumers and traders when gold prices slumped in April, because wholesale jewelers used the opportunity to bolster stocks. Gold prices have declined 16 percent since the beginning of 2013 and the yellow metal was trading at $1,394 an ounce at press time on August 26, having recovered from its low of $1,192 an ounce recorded at the end of June. Global gold jewelry demand rose 20 percent to $26.18 billion during the second quarter. By volume, jewelry demand increased 37 percent to 576 tons, which was the highest quarterly level recorded in five years, according to WGC.
Jewelry retailers, meanwhile, are attempting to push more diamond product in their stores because they see better margins in diamond jewelry than in gold. In wholesale diamond trading, there is good demand for .30-carat to .40-carat, I to J, VS to SI diamonds and steady demand for 1-carat, I to K diamonds. Demand for .70-carat and .90-carat goods is slightly down, while demand for round, VVS-plus clarity goods is weak. Chinese buyers are moving to memo, with increasing demand for lower-quality diamonds at competitive price points. While Far East demand has tapered in 2013, and was particularly slow in August, there were some signs of improved Chinese interest to buy toward the end of the month as retailers start to prepare for the October 1 Golden Week retail period. However, buyers are expected to continue to hold back, at least until the September Hong Kong show, because they remain unsure about which direction prices will trend. Overall, there is very little buying to build up inventory, with dealers working to fill existing orders. Similar holding back was happening in the U.S., although trading levels there have been steady and a stabilizing force for the global market. The major U.S. retail jewelers continue to look for stable supplies for their businesses, while independents are starting to assess their needs for the upcoming Christmas season. There is movement in the U.S. and the country posted its strongest quarter for foreign polished trade in more than five years in the three months that ended June 30, 2013. Polished imports rose 14 percent to $6.46 billion, while polished exports surged 20 percent to $5.65 billion during the quarter, boosted by a large volume of goods brought into, and returned from, the JCK Las Vegas show in May. The U.S. net polished imports, representing the net amount of polished that remained in the country for trading, fell 16 percent to $815 million.
There are some concerns about whether or not there will be sufficient supply of the bread-and-butter .30-carat to 1.25-carat, I and lower, SI and lower goods for the U.S. holiday season, since manufacturing levels have remained muted. While the larger manufacturers have maintained their factory output, most small- to medium-sized manufacturers have reduced their manufacturing. Many have also shifted to trading polished rather than manufacturing rough due to high manufacturing costs. Rough prices were unchanged on the secondary market following the high-priced De Beers sight in July. Rough dealers were giving long-term credit to garner some profit margins on their purchases, while manufacturers continued to lose money. Given the tight liquidity in the market — particularly in India’s manufacturing sector — sightholders were largely expected to refuse supply if De Beers did not reduce prices at the August sight, which took place at the end of the month after press time. Regardless, high rough prices have limited polished suppliers’ ability to compromise on their polished prices, at least during August when the market was in a relative standoff. There was no urgency to buy or sell as dealers were prepared to temporarily wait out the vacation period and market uncertainty. That will soon change as the fourth-quarter season approaches. And as it does, how the market will trend remains anyone’s guess. Article from the Rapaport Magazine - September 2013. To subscribe click here.
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