Industry
Anxiety Continues Amid Stable Market
Dealers are questioning whether the current stability can be maintained and predictions remain uncertain.
By Avi Krawitz
Anxiety Continues Amid Stable MarketFor the most part, polished diamond dealers were satisfied with the price stability that continued through February, hoping it would spur some stronger activity in the coming months. But they also expressed some anxiety about the state of the market, not yet convinced that there is sufficient demand to influence a sustainable increase in prices. At the same time, they note shortages in certain categories, especially triple EX goods, which were selling at premiums of around 5 percent to 10 percent compared to similar stones of lesser quality. Trading quieted in February, with Far East wholesalers closed during the Chinese New Year Golden Week from February 9 to 15. Similarly, domestic demand in India slowed as the wedding season started to draw to a close. U.S. demand was relatively stable, dominated by marginal preparations for Valentine’s Day but characterized by discount buying and focused on more affordable, value-priced goods. Activity in the trading centers responded accordingly and dealers expressed some concern about how the market will trend moving forward. During the period February 1 to February 18, the RapNet Diamond Index (RAPI) for 1-carat diamonds fell .3 percent. RAPI for .30-carat stones increased by .3 percent while RAPI for .50-carat diamonds declined .4 percent and 3-carat stones dropped .5 percent.
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Initial reports from the Chinese New Year season indicated that jewelry sales outpaced other retail categories. China’s commerce ministry reported that gold, silver and jewelry sales increased 38.1 percent year on year during Golden Week, which could have been helped by the fact that the spring festival coincided with Valentine’s Day this year. Overall, retail and restaurant sales grew 14.7 percent, which Bloomberg noted was the slowest pace in four years. It appears that consumption in China continues to be pressured by concerns about the global economy and the uncertainty that comes with the recent change in political leadership. Luxury sales growth also may be negatively impacted by the government’s crackdown on corruption, which began with restrictions imposed on advertising for extravagant spending on gifts for officials. The World Gold Council (WGC) projected a steady firming, rather than strong growth, of China’s gold demand in 2013. This comes after the country’s gold investment and consumption reached record values in 2012. In contrast, WGC reported that India’s gold demand was mixed in 2012, saved by an upturn in consumer sentiment in the second half of the year that helped spark a late-summer rally. “The market continued to thrive during the fourth-quarter wedding season and festive period, the highlight being Diwali, when gold demand was particularly buoyant in urban areas,” WGC explained. Anticipation of the import duty hike to 6 percent, which took effect in January, further stimulated demand in December. The combination of improved demand in China and India boosted overall gold jewelry demand to record levels in the fourth quarter, with value up 14 percent to $29.1 billion and volume up 11 percent to 525 tons.
Trends in the diamond industry were less profound. While the market started to stabilize in the fourth quarter, and continues to do so, the improvement was not due to a significant uptick in demand. If anything, the polished trade through the major consumer centers slowed slightly in the fourth quarter, ending a year of overall declines for the diamond market. In 2012, polished imports to the U.S. fell 9 percent to $19.64 billion while polished exports declined 7 percent to $16.59 billion. Similarly, Hong Kong’s polished imports dropped 4 percent to $16.57 billion and its exports fell 12 percent to $11.53 billion. Jewelry wholesalers and retailers in both markets continue to manage smaller inventories and are buying diamonds based on their immediate needs. And that, too, is making the market difficult for dealers to read. The trade in India, Belgium and Israel continues to view the market with caution. While manufacturers are careful to ramp up their polished output, polished suppliers are faced with shortages and uncertain if there is sustainable demand for those same goods. While they continue to do business, it is unclear how the market will evolve in the short term. In such an environment, the polished price stability experienced in February and the few preceding months has been a positive for the market, even if there’s some doubt about its sustainability. Article from the Rapaport Magazine - March 2013. To subscribe click here.
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