The diamond trade remained weak in May as a squeeze on financing continued to impact the Indian market. Tight liquidity led to concerns about manufacturers going bankrupt. Demand for rough and polished stones was slow, especially in smaller sizes, as cutting firms worked down inventories amid an oversupply that has persisted since the second half of last year.
Cutting firms reduced their production in the first quarter, noted Sarine Technologies, a provider of diamond-mapping equipment for polishers. The Israel-based company recorded a 34% drop in sales for the period.
“The working-capital issues experienced by midstream diamond manufacturers in India was exacerbated by the banks’ call for return of some of the already-extended credit [in the first quarter],” Sarine Technologies said May 12.
Mixed demand
There was steady demand for 0.70- to 1.99-carat, G to J, VS to SI diamonds in early May, mainly from the US. That supported the global market, and created a degree of optimism for the JCK Las Vegas show in late May and early June. However, the excess polished stocks continued to put pressure on prices. The RapNet Diamond Index (RAPI™) for 1-carat diamonds fell 0.8% between May 1 and 19. Prices of 0.30-carat stones slid 2.4% for the period, while RAPI for the 0.50-carat category dropped 1.4%. The index for 3-carat diamonds fell 0.5%.
Rough demand was also sluggish as manufacturers struggled to make profits. High rough prices continued to intensify that problem. Alrosa’s rough-diamond sales slid 34% to $1.3 billion in the first four months of 2019, partly due to lower restocking among retailers at the start of the year following disappointing US holiday sales. The oversupply of polished contributed to the weak rough market, and will likely continue its impact on the sector, the miner predicted.
Many manufacturers are lobbying miners to offer rough at cheaper rates. De Beers maintained prices at its May sight, with the total for this sales cycle coming to $415 million — a drop of 25% year on year. The company’s anticipated lower production for this year is likely to create some shortages, as it will result in many sightholders receiving fewer goods than they did in 2018.
External pressures
The industry remains upbeat about consumer demand, especially in the US. American consumer sentiment rose in early May to its highest level in 15 years, according to the University of Michigan’s Surveys of Consumers.
However, diplomatic tensions between Washington and Beijing risk stifling confidence in both the US and greater China. The Trump administration’s proposal of higher tariffs on products including diamonds and jewelry from China has created uncertainty.
Meanwhile, sales of jewelry, watches, clocks and other valuable gifts in Hong Kong fell 2.7% to HKD 22.38 billion ($2.85 billion) in the first quarter, according to the municipality’s Census and Statistics Department.
Retail sales will “continue to be affected by various external uncertainties in the near term,” a spokesperson for the Hong Kong government said.
The diamond market is highly dependent on global economic circumstances. That is likely to remain the case this year as geopolitical challenges persist.
Article from the Rapaport Magazine - June 2019. To subscribe click here.