Industry
Rough on a Roller Coaster
High rough prices continue to put pressure on polished pricesand manufacturers’ profit margins.
By Avi Krawitz
While the recent polished price increases helped improve cutters’ margins, they remain under pressure from the prevailing higher rough prices. Cutters argue that their polished is constantly one step behind the rough market, which has witnessed an uptick in activity in 2013. In the weeks following the generally positive Hong Kong show, there was excellent demand for certified .30-carat to .40-carat, G-K, VS2-SI2 stones with good demand through to 2-carat sizes. Triple EX goods are hot and fetching premiums of around 5 percent to 8 percent, with some buyers taking VG goods due to shortages. In fact, buyers noted shortages in numerous in-demand categories because manufacturing has been below capacity, with Indian factories hesitant to significantly raise their output. As a result, certified polished prices firmed slightly in March. The RapNet Diamond Index (RAPI) for 1-carat stones rose .3 percent during the period March 1 to March 22. RAPI for .30-carat diamonds increased 1.6 percent, while .50-carat goods were flat for the period and 3-carat diamonds declined .1 percent. RAPI for 1-carat stones rose about .6 percent in the first quarter of 2013.
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Caution was evident as Chow Tai Fook, the world’s largest jewelry retailer, reported that its same-store sales fell 2 percent in January through February, which included the busy Chinese New Year period. The company noted that retail sentiment was still weak in Mainland China, where same-store sales fell 7 percent, while the mood in Hong Kong and Macau was better, with same-store sales up 5 percent across those markets. U.S. jewelry retailers appeared slightly more upbeat, with U.S. jewelry store sales — not adjusted for seasonal effects — up 14.7 percent year on year to $1.954 billion during January, according to the most recent available data as tracked by the U.S. Department of Commerce. The increase came despite the fact that consumer price inflation (CPI) for jewelry fell 3.5 percent in January. CPI for jewelry dropped a further 2.8 percent in February, government data showed.
Still, consumers have expressed concern about the economy, particularly as expectations rose that March spending cuts might slow economic growth. In addition, Europe was thrust back into the economic headlines with the last-minute $12.9 billion bailout package from international lenders designed to stabilize Cyprus’ crashed economy and reopen its shuttered banks. There is some disquiet that investors, who have ridden a bullish run on the financial markets, may pull back on concern that the Cyprus episode may spread the euro zone debt crisis. At press time, the Dow Jones Industrial Average (DJIA) was unaffected and continued to set new all-time highs. On March 22, the index was up 7.5 percent since the beginning of the year. As yet, the diamond market has been unaffected, but most in the industry are watching these global economic developments with interest. While the trade has made a positive start to 2013 and expects the momentum will continue, it is all too aware that a turn in economic sentiment will spill over to the diamond trade. For now, they are expecting the momentum created at the Hong Kong show will continue.Article from the Rapaport Magazine - April 2013. To subscribe click here.
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