The diamond market is slow, but traders are starting to see indications that the situation is stabilizing. Declines in both rough supply and polished manufacturing have created shortages in certain categories, helping to ease, at least partly, the inventory crisis that has plagued the industry this year.
“In the last two or three weeks, the polished market has been a little better,” an executive at a large Indian manufacturer said in late September. “It’s not fantastic, but it’s better than what it was before. There are orders coming in, and people are not able to find goods.”
Lower production of 0.30- and 0.40-carat goods has brought a slight improvement in those segments, which have been weak for most of 2019 due to an oversupply, exhibitors noted during the September Hong Kong Jewellery & Gem Fair. Nicely made SI diamonds are moving better than they were, also because of lower availability. The upcoming Diwali break in India is likely to result in further shortages, as many factories will shut for three weeks.
Prices continued to fall in most major sizes, though not as sharply as in previous months. The RapNet Diamond Index (RAPI™) for both 1- and 3-carat stones declined 0.8% between September 1 and 25. However, the index for 0.30-carat diamonds rose 0.1%, in contrast to heavy declines earlier this year. RAPI for 0.50-carat goods slipped 0.3%.
Miners restricting supply
Rough buyers expect the large mining companies to maintain their recent policy of restricting rough sales — rather than slashing prices — in an effort to ease the overstock in the midstream.
De Beers maintained its flexibility at the September sight, allowing clients to reject goods or sell them back to the miner, sources said. The sale was ongoing at press time.
“Miners have reduced rough supply in the last few months, notably Alrosa and De Beers, to the tune of 20% to 45%,” said Lawrence Ma, president of the Diamond Federation of Hong Kong, China, at the recent show. “That is a very healthy course of action to take, because the whole supply chain is trying to rationalize inventory levels.”
Fair disadvantage
Business at the Hong Kong event was slow, mainly because the trade war had hurt Chinese consumer demand. Attendance decreased due to anti-government protests in the municipality, which also affected local jewelry retail sales.
The number of Chinese diamond buyers at the fair dropped, as many retailers have too much inventory and are suffering from weak consumer demand, exhibitors explained. Consumers in the country are shifting toward lower colors and clarities, they added.
Stable US engagement-ring demand is supporting the market. However, increased tariffs on Chinese imports could affect consumer spending, according to Jack Kleinhenz, chief economist at the National Retail Federation.
As the holiday season approaches, diamantaires anticipate better demand and an opportunity to reduce their inventories further. The October Golden Week, Christmas and Chinese New Year are all potential jewelry-buying occasions for Chinese consumers, while steady holiday revenues in the US would significantly boost the market. “They haven’t bought much over the last few months, so I’m sure demand will come back,” an Antwerp-based dealer noted about Chinese retailers. “They can’t keep on like that.”
Article from the Rapaport Magazine - October 2019. To subscribe click here.