Sentiment in the diamond trade was low during the first two weeks of April. Indian cutters’ liquidity remained tight, as banks have been reluctant to finance the manufacturing sector. Meanwhile, high rough prices and a slow polished market led to slim margins.
Lenders “understand that manufacturing diamonds [is] not profitable,” said Dudu Harari of brokerage firm Bluedax in a report, noting that recent bankruptcies had hit banks’ confidence in the industry. “As a result, clients need to bring increased collateral against their loans, which is putting even more pressure on them.”
Smaller polished diamonds saw especially weak demand in the first half of the month, with the RapNet Diamond Index (RAPI™) for 0.30-carat stones sliding 1.4% between April 1 and press time on April 14. RAPI for 0.50-carat diamonds declined 0.7%. US demand for 1-carat goods supported the market, though the index for that size still slipped 0.1%. Prices of 3-carat stones dropped 0.2%.
Manufacturers reduced polished output in smaller categories due to the state of the market. That created some optimism that shortages might emerge and polished prices might climb.
A mixed bag for miners
Rough demand stabilized in March and early April, following a sharp drop in the second half of 2018 and the start of 2019. De Beers’ rough-diamond revenues rose 10% year on year to $575 million at the third sales cycle, which included the April sight in Botswana. Alrosa saw improved demand for smaller stones in March, but sales still fell 33% to $377.1 million for the month.
“We are cautiously optimistic about the second quarter,” said Alrosa CEO Sergey Ivanov. “Despite the persistent difficulties the Indian manufacturers have with access to funding, in general, the end demand for diamond jewelry demonstrates resilience.”
US keeping diamond market afloat
Global consumer demand wasn’t buoyant, but the stable US market supported the diamond trade.
The nation’s consumer confidence declined by an “insignificant” margin in early April, as the positive impact of tax reforms appeared to have faded, according to the University of Michigan’s Surveys of Consumers. However, incomes are rising, and inflation is low, the report said.
Far East demand remained uncertain due to China’s tariff dispute with Washington. While the Hong Kong luxury market has benefited from increased tourism, “spending has been leaning toward lower-priced items,” explained Chow Sang Sang, one of the region’s largest jewelry retailers, in a March 28 update.
“The near-term outlook for retail sales should continue to be affected by moderating global economic growth and various external uncertainties,” a Hong Kong government spokesperson predicted April 1. That said, a strong job market and growth in tourism “should provide some support,” the spokesperson added.
Optimism for the Chinese industry improved as the country’s government unveiled a stimulus package to boost the economy. Meanwhile, a resolution to the ongoing trade war looked increasingly likely.
The midstream’s reliance on US demand has created some nervousness, as that market, too, has been volatile in the past year. Traders’ immediate worry, however, is high rough prices, and the low likelihood of any significant adjustment, especially as polished doesn’t seem to be picking up. That situation has left much of the industry in a pessimistic mood.
Article from the Rapaport Magazine - May 2019. To subscribe click here.