The diamond industry remained under pressure in April due to lockdowns aimed at containing the COVID-19 pandemic. The decline was not as severe as in March, when the virus’s spread through Europe and the US had a sudden impact on trading and prices. But neither was there a recovery, as the shutdowns left retailers, suppliers and manufacturers with minimal revenues.
By April 1, the outbreak had affected every stage of the supply chain: Many jewelry stores had closed in the most important markets, polishing had mainly stopped, and several mines had entered care and maintenance. The crisis came just when sentiment was beginning to improve slightly; Chinese demand had appeared to be returning, and the polished oversupply that marred 2019 had started to ease.
“[At the same time that] businesses are still navigating financial challenges, the aftermath of the coronavirus on the gem and jewelry industry seems to be daunting,” said Sanjay Kothari, vice chairman of Hong Kong-based diamond manufacturer KGK Group. “The pandemic outbreak has only worsened the feeble state of this industry.”
The RapNet Diamond Index (RAPI™) declined in all major sizes, albeit at a gentler rate than during the previous month. The largest and smallest goods saw relatively heavy drops: RAPI for 0.30-carat stones went down 0.7% between April 1 and 21, and prices of 3-carat diamonds slid 2%. The index for 0.50-carat items slipped by a more modest 0.3%, while the 1-carat category rose 0.1%.
Domino effect
The rough market slowed significantly due to lower polished demand, a lack of production, and logistical challenges. Miners reduced their activities across southern Africa and Canada as a result of government-enforced lockdowns.
The cutting industry in Surat, India, has also been shut since late March.
De Beers canceled its third sight of the year, which was due to start at the end of March, as many customers could not enter Botswana or receive shipments. Both the company and its Russian rival Alrosa — which held its most recent sale in early April — allowed clients to defer all purchases until later in the year. Meanwhile, revenue fell at the smaller and medium-sized miners, as manufacturers didn’t anticipate returning to a normal schedule in the near future.
“The diamond industry continues to face challenging conditions across key markets, exacerbated by the impact of COVID-19,” Rio Tinto noted on April 17. “In particular, there has been a demand slump due to a retail shutdown during peak season, as well as lower rough-diamond demand from people-movement restrictions in India.”
A long road to recovery
China and Hong Kong gradually returned to business as the virus slowed its spread in the region. Jewelry retailer Luk Fook reported improved trading in mainland China for the first two weeks of April, but said its operations in Hong Kong and Macau weren’t showing any “obvious signs of recovery,” since tourist numbers were still down compared with last year.
Meanwhile, the US consumer market, usually a steady source of demand, ground almost to a halt. Most states have imposed restrictions on movement, and major retailers such as Signet Jewelers and Tiffany & Co. have closed all their stores in North America.
“Even if the economy begins to reopen in May, consumer behavior may take a long time to adjust,” said Jack Kleinhenz, chief economist at the National Retail Federation (NRF). “The road to recovery could be long and slow.”
Article from the Rapaport Magazine - May 2020. To subscribe click here.