Industry
Rough Market Strengthens
The diamond trade is hoping the upcoming Las Vegas shows will justify the strong rough market experienced in the first quarter.
By Avi Krawitz
Diamond dealers returned from the spring break in an optimistic mood as they looked toward the Las Vegas shows to reboot activity. Polished trading slowed in April, as it traditionally does, with many businesses closed during the extended Easter weekend and eight-day Passover holiday. However, rough demand remained robust, with rising premiums for Russian goods on the secondary market following ALROSA’s sale. De Beers did not hold a sight in April, resulting in some pent-up demand expected when sightholders travel to Gaborone for their supply in May. While manufacturers continue to stock their factories with rough, there is some unease that there will be an influx of polished goods into the market that will not be met by demand during the traditionally quiet second and third quarters. Concerns also rose that the mining companies were overextending themselves — and the market — as production is expected to rise by an estimated 12 percent in 2017, according to Rapaport News calculations. Whether the diamond trade can absorb all the rough being sold in the market has been the question on everyone’s minds since the beginning of the year.
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The rough market tends to be strong in the first quarter, given that Indian manufacturers closed during most of November for Diwali and require rough as they ramp up polished production again. They also need goods to satisfy orders from jewelers replenishing stock sold during the Christmas and Chinese New Year seasons. This year’s rough sales growth was also compared to first quarter 2016 when the market was still recovering from its collapse in late 2015. Manufacturers have been fairly conservative since then. They gained some confidence this year as rough prices rose by 2 percent to 3 percent during the quarter, according to Rapaport News estimates. Strong rough sales in March reflected positive sentiment among manufacturers following the Hong Kong show, explained Bruce Cleaver, De Beers CEO. However, dealers noted that the momentum from the Hong Kong show slowed slightly in April even as Chinese demand continues to show signs of recovery.
Polished diamond prices were consequently mixed. Most size categories softened, as suppliers were willing to compromise in order to generate liquidity before new, better-quality polished production becomes available. The RapNet Diamond Index (RAPI™) for 1-carat diamonds fell .5 percent during the period April 1 to 24 (see RapNet Diamond Index [RAPI™] in slideshow). RAPI for .3-carat diamonds rose .7 percent, continuing the positive trend from the first quarter, driven by the resurgence of Chinese demand. RAPI for .5-carat diamonds declined .9 percent and RAPI for 3-carat diamonds slid .5 percent during the period. The trade was keeping a close watch on inventory levels as the traditionally quieter second quarter began and new polished production entered the market. The number of stones listed on RapNet at press time increased by 6.2 percent since the beginning of the year. Meanwhile, polished trading levels continued to decline, with Belgium’s first quarter exports falling by 13 percent year on year by volume, while imports dropped 6 percent. By value, Belgium’s polished exports and imports fell 11 percent and 10 percent, respectively (see Belgium’s 1Q Polished Diamond Trade in slideshow). Belgium’s exports to the U.S. dropped 24 percent by volume during the quarter and by 21 percent to Hong Kong, according to data published by the Antwerp World Diamond Centre (AWDC). Similar trends were evident in other centers. Dealers expect the market will continue to realign to lower levels of demand as the retail sector consolidates with lower inventory requirements from jewelers. They’re looking toward the Las Vegas shows at the beginning of June to assess that reality in the U.S. market. A positive show, signaling consistency and confidence in the U.S. market, together with the apparent improvement in China, would provide some reason for optimism in the diamond trade that may justify the strong rough market after all.Article from the Rapaport Magazine - May 2017. To subscribe click here.
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