The diamond trade has suffered possibly its worst quarter since the financial downturn of 2008 and 2009. The coronavirus began as a purely Far East event affecting suppliers to key markets such as China and Hong Kong, but quickly turned into a global crisis.
By mid-March, trading floors had shut in New York, Antwerp and Israel, while polished prices slumped. Governments stepped up social-distancing rules during the month, leading to mass closures of retail stores across North America, Europe and elsewhere.
“Our industry, which was just about starting to recover from one of the most challenging years on record, is now being damaged again by the side effects of COVID-19,” noted David Harari of rough brokerage Bluedax in a March 8 blog post. “This virus has brought the market to a standstill.”
The RapNet Diamond Index (RAPI™) dropped sharply, with prices of 1-carat diamonds declining 5.6% between March 1 and 23. RAPI for 0.30-carat stones fell 6.1%, while the index for 0.50-carat goods was down 5.5%.
Starting small
The initial impact of the pandemic was on the 0.30- to 0.50-carat categories, as these are generally more popular in the Chinese consumer market. This came through in De Beers’ decision to allow customers at its February sight to defer purchases of certain 1- to 2-carat rough diamonds that can make these polished sizes.
However, the consequences became more comprehensive as the virus spread to the US and Europe. Rough prices fell 10% to 25% at auctions in March, according to Rapaport estimates. At the Alrosa rough sale that began March 10, the miner let clients push off up to 60% of all goods, whether destined for China or not.
Meanwhile, the Indian trade, which sends about a third of its exports to China and Hong Kong, has experienced difficulties receiving payment for goods it shipped ahead of the Lunar New Year in January. This has weighed on cutters’ relationships with banks. The Gem & Jewellery Export Promotion Council (GJEPC) successfully negotiated for extra time to repay loans, but the impact on cash flow will still be significant.
Furthermore, the number of coronavirus cases in India is growing; the country went into a three-week lockdown starting March 25. By press time, Mumbai’s Bharat Diamond Bourse and the polishing sector in Surat had closed in line with the government’s curbs on nonessential business.
Hard-hit shops
Retail figures will likely be ugly due to the shutdown of stores in large parts of the world. Signet Jewelers, Tiffany & Co. and Macy’s were among the companies announcing mass closures in North America. Signet decided not to issue any financial guidance for the new fiscal year that began March 1, indicating there was great uncertainty about the effects of the outbreak on consumer spending. A shift to e-commerce won’t be enough to compensate for the slump.
Kering, the owner of Gucci and Boucheron, predicted its global revenue would fall 13% to 14% in the first quarter, mainly reflecting the China slowdown. The situation will have a sharp impact on the second quarter as well, the company said.
But Kering also offered a hint of optimism about China, noting that sales declines there were narrowing as the virus situation stabilized. Still, it will take a while for positive momentum to return to the global luxury industry.
Article from the Rapaport Magazine - April 2020. To subscribe click here.