Market sentiment was positive in February as retailers continued to restock following the holidays. Festivals that took place during the month yielded strong results. US dealers reported a good Valentine’s Day season, while the Chinese New Year occurred during a buoyant period for consumer demand on the mainland.
The RapNet Diamond Index (RAPI™) did not fully reflect this optimism, as the categories it tracks — D to H, IF to VS — were relatively weak. While the industry’s initial recovery in the middle of 2020 was in those higher qualities, the last few months have seen a shift toward lower colors and clarities.
Accordingly, RAPI for 1-carat diamonds increased by a modest 0.3% between February 1 and 21, with the 0.30-carat index falling 0.3%. Prices of 0.50-carat goods slipped 0.5%, and the 3-carat RAPI dropped 2.5%.
Production flat
India’s polished exports grew 9% year on year to $1.8 billion in January, the third consecutive monthly gain, as retailers sought goods ahead of the important February selling occasions. The momentum appeared to continue into last month, with the country’s manufacturing units maintaining polished production at full capacity in response to strong demand.
The rough sector was busy as cutters bought inventory to help meet polished orders. Dealers sold rough at high premiums on the secondary market. De Beers lifted prices by an average of around 4% at its February sight, with sharper increases in larger sizes, industry sources noted. This fueled concerns about an oversupply of both rough and polished in the coming months.
Bain & Company expects rough production in 2021 to be flat year on year, according to its annual report on the diamond industry. The closure of Rio Tinto’s Argyle mine will cancel out renewed activity at deposits that shut because of Covid-19, the report said. However, rough supply to the market is likely to increase if demand continues to improve, as the larger miners will attempt to sell inventory that built up in 2020.
“If there was one advantage from last year, it was that the pipeline [ended up] in a healthier situation [than in previous years],” said Mike Aggett, CEO of Dubai-based rough tender house Trans Atlantic Gem Sales. Still, the trade may revert to “a slightly clogged pipeline, and therefore [to] the restraints on finance that have been a problem for quite a few years.”
Synthetic prices drop
Meanwhile, global lab-grown production has risen in the past two years, reaching between 6 million and 7 million carats in 2020, Bain estimated. Prices have fallen as a result: The retail discount for 1-carat, G-color, VS-clarity polished lab-grown diamonds rose to 65% last year against the equivalent natural stone. In 2017, the discount was 35%, while in 2018 and 2019, it was 50%.
“In addition to independent lab-grown manufacturers, major fashion-jewelry retailers are adding lab-grown diamonds to their product offerings, further positioning the category into the fashion-jewelry segment and making it accessible to a wider range of price-sensitive consumers,” Bain explained.
While traders indicated upbeat Valentine’s Day demand, uncertainty still existed as March approached and the major holiday and engagement season came to an end. The speed of restocking in the Chinese market will be important in the coming weeks. The rebound in consumer spending on the mainland is cause for optimism, even if a slowdown in travel continues to hurt tourism-focused markets such as Hong Kong.
“Thanks to the control of the pandemic, the majority of jewelry stores in China that shut down in the first quarter [of 2020] resumed operations in the second quarter, and retail confidence [is] gradually [building] up,” said a report by the Guangzhou Diamond Exchange. “The overall robust sales in the mainland market counter the persistently sluggish sales in the Hong Kong and Macau markets.”
Article from the Rapaport Magazine - March 2021. To subscribe click here.