The polished market showed signs of improvement in October. Indian companies were busy filling final orders ahead of Diwali, and US retailers prepared their inventory for the holiday season. While bourses were quiet due to Jewish festivals, demand was steady in select categories. The oversupply in the market lessened due to lower rough output from miners and a reduction in manufacturing.
“The excess inventories in the midstream continued to ease, and thus the issue of working capital has been somewhat alleviated, at least for the short term,” Sarine Technologies, a supplier of diamond-mapping equipment, noted in a trading update on October 17.
Prices stabilized during the month, with the RapNet Diamond Index (RAPI™) for 1-carat diamonds declining 0.1% between October 1 and 27, in contrast to a 0.3% slide in September. RAPI for 0.30-carat stones increased 1.1%, while the index for 0.50-carat diamonds rose 0.4%. Prices of 3-carat goods climbed 0.1%.
Roughly optimistic
Rough demand was weak as cutters sought to keep their inventory low. Some Indian factories, having reduced their production, delayed their Diwali shutdowns to ensure they would have merchandise to sell after the three-week break. They achieved this by polishing the rough they already had, rather than buying more.
“There was a slight increase in activity in the Indian manufacturing centers ahead of the Diwali holiday,” said Petra Diamonds in a statement on October 21. “However, polished prices and exports remain under pressure, with softer demand and lower prices for rough diamonds.” Petra’s prices decreased about 4% on a like-for-like basis in the three months ending September 30, compared with the previous quarter, the company noted.
De Beers, the largest rough supplier by value, continued to limit its production in line with market conditions. Its output fell 14% to 7.4 million carats in the third quarter, while revenues at the September sight slumped 39% year on year to $295 million. Nonetheless, the overall alleviation of the midstream glut has created optimism, according to Russian miner Alrosa.
“The second half of [the third quarter] saw an upward trend in rough-diamond sales after a turning point in destocking, thus creating a basis for the market recovery in the future,” Alrosa said.
Hong Kong slump
Retail prospects were mixed as social unrest in Hong Kong created concerns about Far East demand. Sales of jewelry, watches, clocks and other valuable gifts in Hong Kong slumped 47% year on year to HKD 3.93 billion ($501.3 million) during August, the municipality’s Census and Statistics Department reported. The Hong Kong Retail Management Association predicted further overall declines in the coming months. Mainland Chinese demand showed more positivity as shoppers spent domestically rather than in overseas tourist locations.
US holiday demand supported the market, despite concerns about the trade war. Consumer sentiment “remained at very favorable levels” in October, according to the University of Michigan’s Surveys of Consumers. The National Retail Federation (NRF) forecast a 4% increase in Americans’ average spending during the upcoming season, putting the figure at $1,048 based on a poll of almost 8,000 consumers.
Traders are hoping overall holiday sales will be sufficient to reduce inventories and further release the pressure the industry has suffered in recent months.
Article from the Rapaport Magazine - November 2019. To subscribe click here.