Industry
Middle Range Diamonds Suffer
Polished prices softened after a mediocre holiday season, while the rough market woke up in anticipation of post-holiday retail restocking.
By Avi Krawitz
The diamond trade faced familiar challenges at the start of the year after a mediocre U.S. holiday season highlighted a need for companies to differentiate themselves in a crowded market. With continued consolidation expected in 2017, both among jewelers and diamond dealers, diamantaires are weighing their options while recognizing that demand has narrowed to satisfy certain growth segments. “The market is changing and the category of product is shifting to lower price points that sell every day or to the very high-end,” said Carlo Quadri Mariani, owner of Mariani, a Milan, Italy–based jewelry wholesale supplier to high-end retailers. “The middle range is struggling because the economic situation hit the middle class hard, not only in the U.S., but across the globe.” Many anticipate the middle-income segment will remain under pressure due to continued political uncertainty as the Trump administration acclimates to governing the U.S., and with elections taking place across Europe. Roberto Coin, owner of the brand that carries his name, stressed it will take some time for the economy to settle down and for politics “to recover some logic,” he told Rapaport Magazine at the VicenzaOro fair that took place in January. “I’m more confident for 2018,” Coin added. (See full report on VicenzaOro in the Industry section.)
Diamantaires expressed similar caution even as they anticipate a rise in demand in the first quarter as jewelers start to replenish stock sold during the holiday season. While major jewelers experienced a difficult season, smaller independents enjoyed slight growth over the previous year, reported De Beers CEO Bruce Cleaver, citing MasterCard SpendingPulse. Signs that jewelry retail sales in Mainland China were starting to improve helped lift the mood ahead of the Chinese New Year that began on January 28. Chow Tai Fook and Luk Fook holdings, two of the largest jewelers operating in Greater China, reported sales rose in Mainland China during the third fiscal quarter that ended December 31, 2016, with gem-set jewelry outperforming gold products. Their respective performances on the Mainland somewhat compensated for continued weakness in Hong Kong and Macau. Diamond trading improved in January but dealers expect the post-season spike to gain momentum only around the Hong Kong International Jewellery Show that begins on February 28. For now, profit margins among dealers and manufacturers continue to be tight as polished prices softened while rough prices firmed in January. The RapNet Diamond Index (RAPI™) for 1-carat diamonds fell 1.1 percent during the period January 1 to 23 (see RapNet Diamond Index [RAPI™] chart in slideshow). RAPI for .30-carat diamonds slid .3 percent, while RAPI for .50-carat stones declined 1.6 percent. RAPI for 3-carat diamonds dropped .5 percent during the period.
Demand for melee and lower-quality diamonds remained weak due to tight liquidity in India. The government reduced the supply of cash through its demonetization program that eliminated high-value currency notes, while gradually reintroducing INR 500 ($7.40) and INR 2,000 ($14.80) notes into circulation. As demand dropped, melee inventory levels rose and availability increased for international buyers. Indian manufacturers subsequently reduced their production of smaller diamonds as they sought to cope with the oversupply and liquidity squeeze. But while domestic Indian demand was soft, trading with foreign buyers improved as they looked for bargains in Mumbai. Larger exporters were less affected by demonetization than smaller companies focused on the domestic market. Overseas shipments of polished rose 19 percent year on year to $5.18 billion during the fourth quarter, according to Rapaport calculations based on data published by the Gem & Jewellery Export Promotion Council (GJEPC). (See India Diamond Trade in 2016 charts in slideshow). The slump in demand has been most felt by smaller diamond manufacturing units as independent local jewelers placed fewer orders amid a sharp decline in consumer spending on gold and diamond jewelry.
There were shortages in select categories as manufacturing levels were restrained in the fourth quarter. India’s rough imports fell 5 percent in December as manufacturers slowly resumed production after the Diwali break that took place in November. For the quarter, rough imports rose 21 percent to $3.85 billion due to the low comparable base from 2015. Cleaver expects the demonetization program will continue to impact the Indian diamond industry in the coming months even as he noted a slight improvement in small-stone demand during the January sight. Overall rough demand spiked as manufacturers are now restocking their factories in anticipation of post-holiday demand. De Beers sold $720 million worth in January, marking its largest sale since July 2014, according to Rapaport records (see De Beers Rough Diamond Sales chart in slideshow). Rough prices firmed with Bluedax, an online rough brokerage, reporting prices for 4 grainers to 8 grainers increased by 2 percent to 5 percent, while the increase in other categories was more moderate with smaller and cheaper goods declining. De Beers boxes were trading at average premiums of 5 percent on the secondary market. This has led to some caution that the buoyant rough market is disconnected from the reality of sluggish polished and retail jewelry demand. “Most manufacturers are quite unhappy,” said one sightholder who requested anonymity. “At the beginning of last year there were margins, but polished prices are down and our margins have been reduced to almost nothing by now.”Article from the Rapaport Magazine - February 2017. To subscribe click here.
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