It’s been a long, cool summer — that was the consensus among
diamond dealers participating in the India International Jewellery Show (IIJS),
which took place at the Bombay Exhibition Center in early August.
In fact, the first half of the year was “not so charming”
for the polished market, according to one manager of a large Surat-based
manufacturer. “But we’ll see what happens at the Hong Kong [Jewellery &
Gem] Fair,” he said. “I feel that people are starting to buy again.”
With dealers in Belgium and Israel on holiday for most of
August and those in India focused on filling domestic jewelry demand during
IIJS, the trade was looking forward to the Hong Kong show — beginning September
13 — for a boost in diamond trading ahead of the fourth-quarter holiday season.
Few were expecting a bump in activity in August, with Europe
experiencing its seasonal slowdown and IIJS offering Indian jewelers an
opportunity to stock up on gold and set jewelry, rather than diamonds, ahead of
the Diwali festival.
Sentiment among Indian jewelry wholesalers was relatively
positive. Orders were steady at IIJS, as consumer spending has returned to
normal since demonetization and the July implementation of the goods and
services tax (GST). A relatively good monsoon season also raised expectations
that consumer spending in India would advance during Diwali, which begins on
October 19 this year.
However, that didn’t inspire an improvement in loose-diamond
trading, and polished prices continued to soften throughout the month. The
RapNet Diamond Index (RAPI™) for 1-carat diamonds fell 0.7% from August 1 to
press time on August 23. RAPI for 0.30-carat diamonds declined 1.1%, while RAPI
for 0.50-carat diamonds slid 1.7%. RAPI for 3-carat diamonds dropped 0.7%
during the period.
As polished demand and prices declined, diamond
manufacturers noted that their profit margins were under pressure in the third
quarter. As a result, rough prices on the secondary market softened, with
dealers reselling boxes of De Beers goods for very low premiums, or even at a
loss.
Polished-diamond production remained steady, although
manufacturers were more cautious about the rough market than they were in the
first half of the year. India’s rough imports fell 6% year on year in July,
according to data from the Gem & Jewellery Export Promotion Council
(GJEPC).
However, De Beers noted steady demand at its sight in late
July-August. Indian manufacturers had to make their rough purchases in time to
complete their polishing before the Diwali break, when factories close,
explained De Beers CEO Bruce Cleaver. With Diwali a week or two earlier than
usual this year, many moved up their rough buying so they would be ready, he
added.
In contrast, Alrosa vice president Yury Okoemov noted a
seasonal drop in rough demand at the Russian miner’s July sale in the run-up to
the August vacation period.
Manufacturers appear to have sufficient inventory for the
holiday season, particularly since US jewelers are maintaining lower stock
requirements. The latest government data showed the country’s polished trade
continuing to contract.
Polished imports to the US fell 9% year on year during the
second quarter — a peak period for trade there, as it includes shipments of
goods for the Las Vegas shows in June. Exports declined 3%, while net polished
imports — the excess of imports over exports, indicating the amount of goods
that remained in the country for consumption — dropped 32%.
The declines also reflect a challenging retail market in the
US as jewelers continue to adjust to changing consumer trends. Jewelers have
been taking goods on memo and concentrating on filling specific orders in
August rather than making inventory purchases for the holiday season.
Dealers are hoping for a rise in US demand in October, as
jewelers are making their holiday purchases later each year. In both the US and
China, the mid-tier jewelry retailers are the ones driving demand, while the
majors continue to manage their inventory with caution, suppliers at IIJS
noted.
With one eye on the holiday season, dealers therefore spent
much of the summer preparing for the Hong Kong show. They expect buyers in the
Asia Pacific region to use the fair as an opportunity to buy goods before the
October 1 National Day holiday, and subsequently for Christmas.
Suppliers have been encouraged by signs that the China and
Hong Kong markets are starting to reawaken, with the major jewelers reporting a
recent improvement in jewelry retail sales — even if that hasn’t yet translated
to increased demand at the wholesale level.
“The Chinese are coming back, but they’re not buying like
before,” explained one Mumbai-based diamond supplier. “They’re replacing stock
they’ve sold, not buying inventory.”
Dealers and manufacturers are expecting that will change to
some extent with the approach of the traditionally busier fourth quarter. An
increase in polished demand would raise their profit margins, given that the
rough market is expected to slow as Diwali approaches. As such, there’s a great
deal of hope that the Hong Kong show will return some charm to an otherwise
cautious polished market.
Article from the Rapaport Magazine - September 2017. To subscribe click here.