Global economic challenges dampened the diamond industry in September. The weak yuan — a result of the US-China trade war — reduced profitability for Chinese traders, and consumer sentiment in the region suffered as well. Meanwhile, high oil prices and India’s growing current-account deficit (the value of imports exceeding exports) led to the depreciation of the rupee, making business harder for the nation’s diamond companies.
At the September Hong Kong Jewellery & Gem Fair, traders displayed uncertainty due to the tensions, and expectations for October Golden Week were low given the reduced consumer outlook in the region. The timing of the show, during Jewish and Jain religious holidays, also meant activity was patchy. To make matters worse, a level-10 typhoon closed the event for a day.
Indian dealer sentiment was down, especially in the smaller categories, with continued concerns about tight margins. The RapNet Diamond Index (RAPI™) for 0.30-carat polished slipped 2.4% in September, while prices of 0.50-carat diamonds fell 1%. Larger diamonds have performed better, with RAPI for 1-carat stones sliding 0.3%, and 3-carat stones increasing by 0.1%.
High-value rough in demand
The rough market mirrored this, showing reduced demand
for smaller goods. In that vein, De Beers allowed sightholders
to defer purchases of certain lower-value diamonds at its September sight. The miner’s proceeds of $505 million from its seventh sales cycle were marginally lower than the $507 million it achieved in the equivalent period a year ago, and 5% lower than in the sixth cycle.
Alrosa, in contrast, has benefited from a shift in its product mix toward higher-value goods, a segment that is still strong. Its August revenue grew 14% to $294.9 million.
“Positive trends in diamond-jewelry sales observed since the beginning of the year contribute to stable demand for almost the entire range of our products, especially for high-price rough diamonds,” noted Yury Okoemov, Alrosa’s deputy CEO for sales.
A strong US jewelry outlook
Indications are strong that the US holiday season will be good for jewelers. While the trade war with China is a concern, consumer sentiment rose in early September amid an improvement in Americans’ expectations for the job market, according to the University of Michigan’s Surveys of Consumers.
Diamond-jewelry sales increased 5% in North America in the second quarter and rose by the same percentage globally, Alrosa reported. Those trends are set to support large parts of the industry for the rest of the year. “We maintain [a] moderately positive outlook for the rough-and-polished diamond-market growth in 2018,” said Okoemov.
Major US retailers, for their part, are showing optimistic signs for the holidays. Signet Jewelers, the US’s largest diamond retailer, plans to open a concept store in Washington under the James Allen brand to showcase its millennial-targeted retail technology. The company also raised its forecast for the financial year after sales increased 1.5% to $1.42 billion in the second fiscal quarter, which ended August 4. Tiffany & Co., meanwhile, has launched a new, modern engagement-ring style, and improved its full-year outlook following strong sales.
Although US demand is robust, the greater-China market appears to be hitting a slow patch. That is unlikely to change as long as uncertainty over tariffs remains.
Article from the Rapaport Magazine - October 2018. To subscribe click here.