Sentiment in the diamond market improved in October as the holidays approached. Retailers expected a decent holiday season, though not a fantastic one, and started buying at a faster rate after months of reduced trading. The Indian manufacturing sector rushed to meet US demand, raising production levels and curtailing the traditional Diwali vacation.
Polished prices rose in some key categories, mainly due to steady investment demand for D-color, IF-clarity stones. The RapNet Diamond Index (RAPI™) for 1-carat diamonds rose 1% between October 1 and 21, while RAPI for 0.50-carat stones increased 0.4%. However, the index for 0.30-carat goods dropped 1.3%, and prices in the 3-carat category slipped 0.4%.
Balancing expectations
Traders maintained a degree of caution, as the industry is prone to supply gluts when companies higher up the pipeline overestimate consumer demand. Retailers have been holding slimmer inventories than they used to, and their restocking has not matched the level of their sales, an Indian manufacturing executive explained on condition of anonymity.
“Jewelry retailers have sold more in the [third] quarter than they did in [the same] quarter last year,” he said in an interview with Rapaport Magazine on October 20. “On the back of those sales, they should have replenished more, which they haven’t really done.”
Not all companies have benefited from the recent upturn. Suppliers and retailers with strong online capabilities have survived the Covid-19 pandemic intact so far and are now seeing business grow during the pre-holiday period. But those that rely on in-store purchases have had more negative experiences. The Indian diamond market has seen a similar trend, with the large, established cutting firms in a better position to meet customers’ needs than the smaller ones.
The momentum in the rough market — which began in August — continued into October, with De Beers’ monthly sales rising 57% year on year to $467 million. Manufacturers barely bought in the second quarter, and needed goods to process in time for the US holidays. They’re also planning to close for only five to 12 days this Diwali, instead of the usual two to three weeks, to compensate for the time they lost during the lockdown. These two factors supported rough demand during the month.
“We continue to see a steady improvement in demand for rough diamonds in the eighth sales cycle of the year, with cutters and polishers increasing their purchases as retail orders come through ahead of the key holiday season,” De Beers CEO Bruce Cleaver said in an October 14 statement.
Shoppers’ prerogative
The retail outlook was mixed, with jewelers anticipating a release of pent-up demand this holiday but still observing trends that could limit revenues. US mall traffic remains low, and businesses that rely on the tourist industry are struggling.
Spending at US jewelry and watch stores fell 17% in the 12 months ending August 30, compared with the previous 12 months, according to Deloitte’s 2020 holiday retail survey. Overall, the report said, shoppers expect their expenditure to drop 7% year on year to $1,387 per household this holiday, with many citing concerns about economic stability.
Luxury sales in Hong Kong also floundered as Chinese visitors stayed away. In contrast, consumer demand in mainland China grew as locals spent their cash domestically, including during the Golden Week shopping period in early October.
Along with Christmas, the Chinese New Year on February 12 could be an important selling period. How diamonds perform during the US and Chinese holidays will determine whether the current uptick in rough and polished sales within the industry is justified.
Article from the Rapaport Magazine - November 2020. To subscribe click here.