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Weighing the Supply-Demand Equation
Field Notes
Feb 10, 2022 5:47 AM
By Avi Krawitz
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RAPAPORT... There has been an overwhelmingly positive flow of news coming out of the diamond industry in the past month — largely from the retail sector, where companies enjoyed strong earnings during the holiday season. However, there is an undertone of caution in conversations with members of the trade.
Many are expressing uncertainty about the upward price movement of both rough and polished, a trend that is still going strong this week. The more experienced diamantaires are wary of the sharp increases, which they suggest may be speculation-driven. Indeed, some suppliers are holding off on selling goods, expecting to receive better prices later.
There is some credibility to the assertion that prices could rise further. Supply is down due to lower rough production, changes in rough distribution, and reduced manufacturing resulting from Covid-19. Plus, the mining companies have depleted any excess inventory they built up during the pandemic; their sales will be dependent on what they can produce in 2022.
The lower supply is supporting rough prices. Demand is robust despite the recent price hikes at De Beers’ and Alrosa’s sales, as well as on the secondary market. That, in turn, is supporting polished prices, which manufacturers have had to raise to protect their profit margins. Good US orders have also fueled the polished increases, as jewelers needed to replenish their inventory after the successful holiday season.
That boom seems to be coming to an end now. Jewelers have sufficient inventory to fill their short-term needs. They’re making fewer calls for goods than before, and they’re being more careful about purchasing polished at higher prices. That has left dealers as the prominent buyers in the market, but they, too, are struggling to find stones that will let them turn a profit.
The February edition of the Rapaport Research Report explores these dynamics. As usual, it also presents exclusive data on pricing, supply and demand — figures that further back up these assertions.
At least in the short-term, the main force driving the market is the supply dynamic; polished prices are responding more to rough costs than to demand. That may change if the retail momentum continues and if rough prices stabilize or decline. It’s far healthier for the trade to be demand-driven.
There’s every reason to believe the latter scenario will play out, even if there are concerns that high inflation in the US and a slowdown in China may derail the optimism. Then again, from what we’re seeing on the supply side, scarcities may become the norm. As the market enters a seasonally slower period, it could go either way.
The Rapaport Research Report presents proprietary data on polished diamond prices, along with market intelligence and analysis. Subscribe to the report here.
Image: Cover of the February Rapaport Research Report, which includes multi-diamond ring by Chopard. (Shutterstock, Chopard)
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Tags:
Alrosa, Avi Krawitz, Chinese New Year, De Beers, diamonds, Jewelry, Rapaport
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