The diamond industry was a mixed bag in March. The polished market was strong, as companies throughout the supply chain continued to restock following the US and Chinese holidays. The American government’s latest stimulus package boosted consumer demand, while the provision of Covid-19 vaccines added to confidence. The RapNet Diamond Index (RAPI™) for 1-carat diamonds jumped 1.4% between March 1 and 22. The index for 0.30-carat goods grew 0.3%, while 0.50-carat stones climbed 0.1%. The 3-carat RAPI rose 1%.
However, buoyant rough trading — and rising prices — led to fears that manufacturers and dealers were buying too many diamonds and faced a profitability crunch. Alrosa increased prices for the third consecutive month, implementing hikes of 4% to 5% at its March contract sale. “[The miners have] taken away all the profit margin from the manufacturing pipeline, because…when the polished is ready, the polished market will be slightly weaker than today,” an Alrosa customer contended. “Probably we will all lose some money and not even make the costs.”
Seasonal slump
January and February were busy because of restocking efforts, as well as Chinese New Year and Valentine’s Day sales. Traders expect the diamond market to slow in the coming months, as there are fewer selling opportunities on the calendar. De Beers CEO Bruce Cleaver highlighted this following the miner’s February sight, noting that lower seasonal demand was around the corner. “While the year has started positively, we recognize that short-term uncertainty in the pace and shape of the recovery remains,” he elaborated.
The outlook for rough supply was mixed. Alrosa raised its 2021 production forecast because of the market upturn at the start of the year, predicting output of 31.5 million carats rather than the 28 million to 30 million carats it had previously planned to dig up. De Beers, in contrast, was set to offer reduced allocations at its March sight as of press time, after operational issues at mines forced it to cut its production plan for the year. Market insiders expected sales of around $400 million at the sight, compared with $663 million in January and $550 million in February.
As of March, midstream inventories were still at comfortable levels. This largely resulted from strong sales in mainland China over the lunar festival. Jewelry sales at key retailers there soared 161% for the seven days from February 11 to 17 — which included the New Year selling season — compared with the equivalent period in 2020, the country’s Ministry of Commerce reported.
“While some express concern that the rough market is at risk of overheating, the polished markets are still performing well,” commented a spokesperson for Trans Atlantic Gem Sales, a rough tender house based in Dubai. “China has seen consumer demand for jewelry grow faster than other consumer goods, and leading retailers have accelerated the reopening of stores across China in response.”
An injection of hope
Vaccination campaigns created some optimism around the world. In Israel, for instance, more than half the population has received shots, and the trading hall at the country’s diamond exchange in Ramat Gan reopened in March after being shut since September.
Retail was also set to benefit from the gradual return to business, as well as from wealthier consumers’ accumulated savings during the pandemic and from the US’s injection of cash into shoppers’ pockets. Second-quarter figures will likely look notably better than they did last year, when Covid-19 took hold.
Signet Jewelers, which had a strong fiscal quarter ending January 30, predicted sales would improve in the first half of 2021. However, it expressed concern that jewelry could lose market share once people went back to their lives again. The lack of tourism has benefited parts of the sector, as it’s left some consumers with more disposable income. “As the vaccine rollout progresses, there could be a shift of consumer discretionary spending away from the jewelry category toward experience-oriented categories, the magnitude and timing of which [are] difficult to predict,” Signet said.
Article from the Rapaport Magazine - April 2021. To subscribe click here.