Sentiment was mixed in November going into the important holiday season. Trading picked up relative to the height of the Covid-19 crisis as retailers sought goods for the peak selling period. However, a second coronavirus wave in key markets — and fresh lockdowns in Europe — threatened to derail the industry’s recovery.
The Diwali festival in India led to a slight slowdown in activity compared with October, although the traditional break was shorter than usual because factories and marketing operations had shut for so long earlier in the year. Dealers focused on final US holiday orders, with an eye on the Chinese New Year, which falls on February 12, 2021. There were also hopes that Joe Biden’s win in the American presidential election would boost the economy and end political uncertainty.
Smaller goods saw a price correction after a strong recovery over the summer. The RapNet Diamond Index (RAPI™) for 0.30-carat diamonds fell 1.8% between November 1 and 22, with the index for 0.50-carat goods down 1.3%. However, RAPI for 1-carat diamonds rose 0.2%, continuing an upward trend that had been visible for several months. The 3-carat index grew 1.6%.
Highs and lows
While prices plunged across the board in March, investment demand for D-color, internally flawless stones drove a steady improvement in the subsequent months. There were also signs that interest in lower-end categories was picking up, likely a reaction to the rising expense of D to H goods during the pandemic. October saw a significant increase in searches for I to M diamonds on RapNet, though this tailed off in November, possibly due to Diwali.
Meanwhile, Alrosa noted a shift in sales toward lower-priced rough in the third quarter ending September 30, after seeing greater demand for higher-end products during the previous three months. This change reflected the impact of a US government stimulus package, which supported the struggling market for lower-quality stones at the consumer level, the Russian miner explained.
Despite this, Alrosa is holding high inventories of low-value goods following months of weak sales. Its stockpiles — which came to 30.6 million carats at the end of September — are currently worth around $80 per carat, whereas the market is showing demand for goods priced at an average of $90 per carat, chief financial officer Alexey Philippovskiy reported in an earnings call November 12. The company will focus its 2021 production on the more sought-after categories so it can reduce that gap, he added.
Two factors will help Alrosa sell the cheaper goods, according to Philippovskiy: A possible second government aid package in the US, and the shutdown of Rio Tinto’s Argyle mine in Australia, which has produced a large proportion of the world’s lower-value rough. “Our production mix and inventory mix are actually pretty well positioned [for] what we expect to see in the market [on] the demand side in 2021,” given those developments, he said.
Bridal’s back
On the retail side, jewelers expected a decent holiday period despite the pandemic, with online sales set to surpass those of previous years.
The bridal category supported the market ahead of the season, showing steady demand for 1- to 2-carat, G to H, VS- to SI-clarity goods. “Strong anecdotal evidence shows that engagements are up over the period since Covid-19 hit in spring 2020,” De Beers said in a November 19 market report. “Jewelers say more couples than ever are choosing diamond engagement rings — eschewing industry concerns that the difficult economy would impact the bridal market.”
Still, consumers were cautious about entering stores, even as retailers started Christmas campaigns early to manage the flow of traffic. E-commerce and other service innovations — such as video chat, fast delivery and curbside pickup — will be key this season. How they work in practice will determine whether the industry can make a success of 2020.
Article from the Rapaport Magazine - December 2020. To subscribe click here.