Sentiment in the diamond industry was hard to pin down as 2020 came to a close. After a challenging first half and a modest recovery in the second, the sector showed signs of optimism in the form of greater e-commerce demand and hopes for a post-lockdown sales boost. However, the continued weakness of physical retail and concerns about a supply glut dampened spirits.
The US holiday season reflected this. Jewelry revenues were down 4.3% year on year for the period from October 11 to Christmas Eve, according to Mastercard SpendingPulse. E-commerce sales were strong, gaining 45% compared with the 2019 season, the data provider reported, but this wasn’t enough to compensate for slow store traffic.
Coronavirus vaccines became available in key markets in December, suggesting that the restrictions hampering global business could soon be on their way out. That, combined with a release of pent-up demand, gave rise to a degree of positivity about post-holiday restocking, especially with Valentine’s Day and the Chinese New Year around the corner in mid-February.
“We see good demand for diamonds [at] the end of 2020,” Alrosa CEO Sergey Ivanov said in a December 17 statement. “It is driven by both delayed demand from earlier this year, and a seasonal uptick, which [should] continue in January, supported by buying activity prior to the Lunar New Year.”
Prices up
Polished prices rose, with larger categories performing the best — a trend that has been visible over the past few months. The RapNet Diamond Index (RAPI™) for 1-carat goods gained 2.3% between December 1 and 28, while RAPI for 3-carat diamonds advanced 2.4%. The index for 0.30-carat stones climbed 1.5%, with 0.50-carat prices going up 1.4%.
Rough trading strengthened at De Beers’ December sight. The miner increased prices by 1% to 2% for 0.75-carat goods and larger, as demand for the corresponding polished categories had improved. Premiums rose on the secondary market because manufacturers wanted goods to meet the demand they anticipated, and because reduced polished output during lockdowns had chipped away at inventory levels.
“If you don’t polish diamonds in India for three or four months, that’s hundreds of millions of dollars of polished not coming onto the market,” a large-stone manufacturing executive told Rapaport Magazine on condition of anonymity. “There’s big demand for 1 carat to 5 carats.”
Taking stock
Nonetheless, there was uncertainty about the upcoming first quarter, especially regarding whether Indian manufacturers’ sharp production hikes in the final months of 2020 — a response to shortages — could lead to an inventory buildup. Traders expected large quantities of polished to enter the market as cutting houses bought hefty rough volumes at De Beers’ and Alrosa’s fourth-quarter contract sales.
Meanwhile, substantial inventories at the two major miners cast a cloud over the industry, since they would need to offload excess diamond stock at some point. In light of this, both companies gave cautious production forecasts. De Beers trimmed its 2021 plan to between 33 million and 35 million carats — down from its earlier prediction of 34 million to 36 million. That followed Alrosa’s decision to keep next year’s output at 28 million to 30 million carats, broadly in line with 2020 levels, so it could sell some of the goods it already had.
“We certainly aren’t going to be a contributor to overstocking across the industry now,” said Mark Cutifani, CEO of De Beers parent company Anglo American, in a December 11 call with investors. “Given the supply situation, we’re going to watch that very carefully. We won’t push more production out there unless we’re comfortable prices are going to increase.”
Article from the Rapaport Magazine - January 2021. To subscribe click here.