Industry
Low Profit, Slow Trading, Tight Liquidity Mute Market
With polished inventory levels still relatively high, Indian manufacturers are welcoming their annual vacations as an opportunity to maintain low polished production.
By Avi Krawitz
Polished markets were quiet during April, with very low trading volume in the diamond centers. Dealers and manufacturers expressed uncertainty about the future in light of their continued deep concerns about tight liquidity and low profit margins. Trading was sporadic and order-specific, with many dealers in Antwerp, Ramat Gan and New York taking vacation during the eight-day Passover Jewish holiday, which coincided with the long Easter weekend. In addition, traders in India began their annual vacations during the school holidays from mid-April to the end of May. Consequently, manufacturing and trading activity is expected to remain muted in the month ahead. Manufacturers welcomed the break as they try to reduce the supply of diamonds in the marketplace during the ongoing period of weak polished demand. Manufacturing levels have been significantly reduced in the past few months in an effort to stabilize the market. Turnaround times at the Gemological Institute of America (GIA) have subsequently improved from three months to within two weeks as a lower volume of goods is being sent for grading. At the same time, suppliers resisted pressure from buyers to reduce prices further. Polished prices were relatively stable during the month following the corrections that took effect during the first quarter. The RapNet Diamond Index (RAPI™) for 1-carat laboratory-graded diamonds rose .2 percent during the period April 1 to April 20. RAPI for .30-carat diamonds fell .8 percent, while RAPI for .50-carat diamonds declined by .5 percent. RAPI for 3-carat diamonds decreased by .8 percent (see RapNet Diamond Index (RAPI™) chart in Slideshow).
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Diamond manufacturers continue to hold larger polished inventory than they would like at this time of the year. With a lower volume of polished trading taking place, manufacturers have reduced their rough diamond intake. Sightholders refused approximately 30 percent of goods on offer at the most recent De Beers sight that took place in the final week of March. The sight closed with an estimated value of $500 million after refusals, with prices basically stable. ALROSA reportedly maintained steady prices at its April sale but allowed its long-term contract clients to defer a large amount of goods that were on offer. De Beers and ALROSA, which together account for more than half of global rough diamond supply, have both seemingly adopted a strategy to keep supply relatively low and prices stable in the coming months in the expectation — and hope — that the market will improve in the second half of the year. De Beers rough sales were significantly below 2014 for the first quarter of the year. Rapaport estimates that De Beers rough sales fell about 34 percent to $1.45 billion in the first quarter (see De Beers Quarterly Rough Sales chart in Slideshow), representing the slowest first quarter since 2009, according to Rapaport records. Similarly, Petra Diamonds reported that its sales fell 41 percent year on year to $96.1 million in the fiscal third quarter that ended on March 31, 2015. Petra explained that the market continues to face headwinds associated with credit availability to buyers in the pipeline and the impact of the strong U.S. dollar on dollar-denominated diamond prices. As a result, rough trading on the secondary market has slowed and goods are selling with generous credit terms of 90 to 120 days. Trading volume has slumped since the beginning of the year, with Belgium and Israel reporting significant declines in their respective rough imports and exports (see Belgium’s and Israel’s 1Q Rough Trade chart in Slideshow). The AWDC attributed the drop in rough trading during the first quarter to rough diamond prices currently being very high, especially in comparison to polished prices, leading diamond traders to purchase less. The AWDC added that rough traders are also avoiding acquiring entire stocks of rough diamonds, and are increasingly aligning their purchases to pockets of market demand. Indeed, that seems to be the trend across the distribution chain, with polished buyers hesitant to raise the volume of diamonds they keep in inventory. In the meantime, most expect trading to remain quiet in the months ahead as manufacturers maintain low polished production through India’s annual vacation, and polished suppliers slowly deplete their inventory. While most expect that conditions will improve in the second half of the year, both the polished and rough markets are projected to remain relatively quiet in the month ahead.Article from the Rapaport Magazine - May 2015. To subscribe click here.
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