The diamond market improved at the start of 2020 following a solid holiday for retail. Polished inventory came down due to seasonal demand and lower production at Indian factories. Jewelry revenues rose 1.8% year on year during the holiday, according to Mastercard SpendingPulse. While the corresponding period of 2018 recorded stronger growth of 3.7%, the trade at the time was in reasonable shape and expected better festive sales.
Dealers and cutters, therefore, started 2019 with higher stock levels than they had anticipated, contributing to a poor year for the sector. This time around, suppliers showed more caution and appear to have kept tighter control of their inventory. The number of stones on RapNet fell 5.5% to 1.37 million between November 1 and January 26, and has dropped 6.5% over the
past year.
The RapNet Diamond Index (RAPI™) for 0.30-carat diamonds increased 1.7% between January 1 and 26, while RAPI for 0.50-carat stones climbed 1.4%. The index for 3-carat goods rose 1.2%, but prices of 1-carat polished dipped 0.2%.
Cautious optimism
With demand rising, rough dealers expected strong results at the first De Beers and Alrosa sales of the year, which occurred in January. However, manufacturers’ return to buying raised concerns that large quantities of rough would flood the market in the coming weeks, risking a repeat of last year’s polished oversupply.
“Everything [at the January rough sales] sold better than the previous month, but many believe [the upturn] is just temporary,” an Antwerp-based rough trader told Rapaport News on condition of anonymity.
Nonetheless, miners expressed more optimism than they had throughout 2019, when rough prices slumped 6% at both De Beers and Alrosa on a full-year basis.
“It is…encouraging that rough-diamond pricing has modestly improved moving into our third quarter [starting January 1],” said Petra Diamonds CEO Richard Duffy in a January 27 trading update. “The health of the market will depend on continued supply discipline from the majors, as well as macroeconomic conditions.”
Global climate
While the holidays were robust, global events continued to affect the outlook for the industry. US consumer confidence was stable in January, according to the University of Michigan’s Surveys of Consumers. However, that could change as the presidential elections approach. The uncertainty associated with the 2016 vote had a significant impact on retail sentiment.
In Hong Kong, protests have caused havoc on the streets and damaged retail sales since mid-2019, while lower tourist numbers from mainland China have added to the negativity. Domestic Chinese demand has provided an area of strength, with Hong Kong-based retailers such as Chow Tai Fook and Luk Fook reporting far better sales on the mainland than at home.
However, the outbreak of the coronavirus in parts of China in January — right on the eve of the important Lunar New Year — has provided another source of caution, with authorities putting the public on lockdown in some cities. The last thing the industry needs now is another reason not to go out and buy jewelry.
Article from the Rapaport Magazine - February 2020. To subscribe click here.