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Industry
Trade Report
By Avi Krawitz
Generally positive market sentiment is tempered by certification delays, reduced bank credit and high rough prices.
Polished diamond markets were stable during May amid growing concern about tightening liquidity in the manufacturing sector. Following the lead of European banks, which reduced their financing of rough purchases at the beginning of 2014, Indian banks are now reviewing their credit terms and implementing stricter lending policies. Liquidity is also being stretched by the longer time it’s taking to bring new polished goods to the market, largely due to unprecedented delays by the Gemological Institute of America (GIA) in certifying goods. Diamonds in sizes below 1 carat — the most popular categories — that are sent to GIA laboratories in Carlsbad and New York are taking at least three months to certify, with the grading turnaround time at most other GIA locations longer than four months, according to the GIA’s own website. In an effort to improve information provided to customers and ease market frustrations, GIA recently changed its reporting of lab service time by providing “specific service return dates,” rather than more general turnaround time estimations, as it did previously. Despite increasing its grading capacity, GIA continues to struggle with a high intake of goods and the backlogs have delayed manufacturers’ polished sales at the same time as their rough buying has increased. As a result, there are a lot of goods in the pipeline and some shortages reported in the market, particularly for GIA dossiers in .30-carat to .50-carat D to M, SI-minus diamonds, which continue to be in strong demand. Still, trading was steady as the focus of the market shifted toward the U.S. in advance of the JCK Las Vegas show and polished prices held relatively firm after declining in April. During the period May 1 to 19, the RapNet Diamond Index (RAPI™) for 1-carat certified polished diamonds fell by .1 percent. RAPI for .30-carat diamonds dropped .3 percent, while RAPI for .50-carat diamonds increased by .2 percent during the period, and RAPI for 3-carat diamonds declined by .4 percent (see RapNet Diamond Index (RAPI™) chart in slideshow).
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Diamond demand during May was driven by Las Vegas–focused interdealer trading. Similar to jewelers, diamantaires were satisfied with polished market developments so far this year, although the trade data shows mixed results for the first quarter. Belgium’s polished exports rose 18 percent year on year to $3.93 billion during the period, while polished imports increased 14 percent to $3.65 billion. In contrast, India’s polished exports fell 9 percent to $5.39 billion and imports declined 15 percent to $1.87 billion (see 1Q Polished Diamond Trade – Belgium & India chart in slideshow). India-based polished suppliers explained that the backlogs at the GIA contributed to the slump in exports, especially since delays at the GIA’s Mumbai lab were reportedly more severe than other locations. In addition, they noted that domestic demand remains cautious. However, the mood in India’s trade improved in May, particularly in Surat, as Narendra Modi, of the opposition Bharatiya Janata Party (BJP), was elected to be India’s next prime minister. Modi, who until the election was the chief minister of Gujarat – the state in which Surat is located — is widely considered to be pro-business and reportedly was supportive of Surat’s diamond industry development during his term as chief minister. As a result, many in the industry are hoping the new government will encourage diamond trading and improve conditions for the local trade, especially the country’s vast manufacturing sector. While diamond cutters report that polished demand is stable and positive, they add that profit margins are slim, hit hard by the increase in rough prices in the first quarter.
Belgium’s rough imports rose 17 percent to $4.05 billion during the quarter, and rough exports grew 13 percent to $4.04 billion. India’s rough imports increased 11 percent to $4.16 billion, while exports fell 23 percent to $421 million (see 1Q Rough Diamond Trade – Belgium & India in slideshow). Rough demand was buoyant in the first three months of the year, with prices rising approximately 7 percent to 10 percent, according to Rapaport estimates, but slowed in April and May. De Beers kept its prices and box assortments basically stable at the May sight, which closed with an estimated value of $560 million. Rough trading on the secondary market has slowed, with boxes selling at premiums of around 5 percent when offered with 60- to 90-day credit terms. Dealers are prepared to sell boxes at lower premiums, closer to list price, for cash. High rough prices have added to manufacturers’ liquidity concerns and sightholders stressed that their ability to sell a large volume of polished goods has been hampered by the certification backlog at the GIA. Given these factors, profit margins were foremost on manufacturers’ minds in May as they hoped for a boost in polished trading in Las Vegas. No one is willing to gamble too much, however. They expect that if rough prices remain stable in the coming months while the polished market shows some steady gains, their margins will improve.Article from the Rapaport Magazine - June 2014. To subscribe click here.
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