The diamond trade started 2021 in a surprisingly positive mood given the difficulties of the previous year. US holiday sales were better than many in the industry had expected a few months earlier, as the pandemic pushed consumers online rather than preventing them from shopping altogether. The approach of the February 12 Chinese New Year also boosted trading, and dealers expected a strong season, especially on the mainland.
Polished prices were mixed, with a steady rise in the smallest and largest sizes, and a drop in the medium sizes. The RapNet Diamond Index (RAPI™) for 1-carat diamonds slipped 0.5% between January 1 and 24, while RAPI for 0.50-carat stones decreased 0.9%. The index for 0.30-carat diamonds rose 0.7%, and prices of 3-carat goods improved by 1.2%.
Manufacturing up
Shortages supported the market as the lower production levels from India’s 2020 lockdown continued to impact the industry. Buyers had fewer choices when hunting for goods, resulting in more sales relative to the number of diamonds suppliers shipped.
This trend was visible in Israel’s trade statistics, which detailed the quantities of exported goods that returned to the country, usually because they hadn’t sold. In December, only 54% of its polished exports came back, compared with 90% a year earlier.
“In the past, when you requested a round, 3-carat, F, SI1, the buyer would have got five stones, because there was variety,” explained Yoram Dvash, president of the Israel Diamond Exchange (IDE). “Now he gets two stones.”
That said, Indian factories reached around 90% capacity during much of the fourth quarter as they sought to fill shortages and prepare goods for the holidays. They lifted this rate higher still in January, and traders expected polished inventories to increase that month as the new goods came onto the market.
“In early 2021, cutters and polishers are increasing their diamond production to 100% capacity in anticipation of stable orders in [the first quarter] as jewelry businesses and dealers seek to replenish inventories they sold during the holiday season,” Alrosa said January 21 in its annual-results statement. Strong activity ahead of the Chinese festival contributed to this sentiment, the Russian miner added.
Meanwhile, rough supply soared in January as the optimism led to some of the highest sales at De Beers and Alrosa in years. This created some concerns of an oversupply in the coming months, especially since Chinese retailers would soon be completing their seasonal purchases. While manufacturers have balanced inventories at present, there is still uncertainty because of the pandemic’s effect on spending patterns.
‘Aggressive in their purchasing’
Trade members expected the second US government stimulus package to boost consumer sales. This outlook, combined with scarcities, has supported rough and polished demand within the midstream, an executive at a De Beers sightholder explained.
However, it might lead to speculative buying at unsustainable rates, he cautioned on condition of anonymity. “[Polished] inventory levels are the lowest for at least the past seven or eight years,” he said. “That’s the reason people are going to be more aggressive in their purchasing. People also have a feeling that since there is a lot of money floating around, a lot of money pumped in by governments, there will be an asset bubble, which we’ve seen in the past.”
The numbers indicate a good recent period for US and Chinese retail. Tiffany & Co.’s sales in mainland China grew more than 50% year on year in November and December, the jeweler reported two days before its takeover by LVMH. Signet Jewelers, meanwhile, saw online revenues jump 61% across its global network — mostly in North America — for the nine weeks that ended January 2. February brings both the Lunar New Year and Valentine’s Day — two events that will be vital in determining the US and Chinese markets’ success in the first quarter.
Article from the Rapaport Magazine - February 2021. To subscribe click here.