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Industry
Trade Report
By Avi Krawitz
Will Holidays Be The Savior?Selective Chinese demand and steady U.S. markets have helped offset volatile currencies, high rough prices and tight profit margins. The diamond trade, much like the global economy, has been buoyed by mature markets in 2013 while emerging economies have been jittery. That trend continued in September as the industry started to gear up for the fourth-quarter holiday season. With Diwali, Christmas and the Chinese New Year on the horizon, expectations rose for a spurt of activity driven by a sturdy U.S. market and a hoped-for rise in Chinese demand. The focus of the trade turned to the Far East in September in the hope that the Hong Kong Jewellery & Gem Fair would confirm a reawakening of Chinese demand ahead of the October Golden Week — considered the second-busiest retail festival in China after the Chinese New Year. Trading at the show was mediocre with selective demand and a strong emphasis on lower price points. But it was indeed the Chinese buyers who dominated activity, even as overall trading was at lower levels than in previous years. (See Hong Kong Market Report.) Conservative buying at the show was not enough to drive the rise in polished prices that suppliers had hoped for. The RapNet Diamond Index (RAPI) for 1-carat certified polished diamonds fell .4 percent during the period September 1 to September 17. RAPI for .30-carat diamonds increased .6 percent, while .50-carat diamonds dropped a slight .2 percent. RAPI for 3-carat diamonds was up .1 percent during the period. Throughout the month, there remained strong demand for .30-carat to .60-carat, G-H, VS-SI, triple EX goods, while demand for J-M, VVS goods in the same sizes was steady. Similarly, there has been stable demand for 1-carat, J-M, VS-SI goods. Fancy shapes and fancy color diamonds are selling well as buyers seek creative ways to work within their budget constraints.
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Financial markets in the region have also reflected caution about the economy, with Hong Kong’s Hang Seng Index having a down-and-up year to remain about flat since January. A similar pattern has been witnessed in other emerging markets, with India’s Sensex Index also flat for the year so far. In contrast, stock markets in the mature economies of the U.S. and Japan rallied in 2013, with the Dow Jones Industrial Average and S&P 500 indices up about 15 percent each, while the Nikkei 225 has soared 34 percent this year. It is little wonder, then, that confidence in the diamond trade in these centers has improved this year, particularly in the U.S., where jewelers have grown increasingly upbeat about the year-end season. Diamond dealers in the trading centers are pinning their hopes on that trend continuing for the rest of the year. They note that slower trading in September was influenced by sporadic activity in Israel, New York and Belgium, where many businesses closed during the various Jewish holidays that took place during the month. In India, the volatile rupee, which recovered somewhat from its previous lows of approximately 70 to the dollar, continues to weigh on demand.
The sharp fall in various currencies has impacted trading in a number of centers. While the Japanese yen has depreciated by about 25 percent against the U.S. dollar in the past year, polished diamond imports to Japan have increased by 12 percent year on year when measured in the local currency, but declined 7 percent in dollar terms in the first seven months of 2013. Perhaps most significantly, foreign exchange fluctuations have affected trading in the rough market as manufacturers, dealers and miners have had to hedge currency movements. ALROSA reported that its net profit fell 10 percent to $453 million in the first half of 2013, partly due to foreign exchange losses. The Russian ruble has dropped 7 percent in value against the U.S. dollar since the beginning of the year. ALROSA’s sales increased 7 percent to $2.55 billion in the six months even as the average price of its gem-quality rough diamonds fell 11 percent from the previous year. The company noted that prices rose 3 percent in the first half of the year. However, it is the slump in the rupee that has most impacted sentiment in the rough market, particularly as the currency hit an all-time low in the middle of the most recent De Beers sight in late August. The weak rupee, coupled with high rough prices and lower bank credit to buy rough, has resulted in tight liquidity among Indian manufacturers. The depressed sentiment has spread to dealers and manufacturers in the diamond sector in other countries. As a result, many sightholders refused De Beers goods, with an estimated 20 percent to 25 percent of goods left on the table, after average rough prices maintained relatively high levels at the sight. De Beers reduced prices slightly on most boxes at the sight and increased prices on more popular boxes. The sight had an estimated value of $600 million before refusals. As a result, there was very little trading of De Beers goods on the secondary market in September due to a shortage of available rough and due to the lack of profitability in the boxes. Dealers were forced to give long-term credit in order to achieve their desired prices. Manufacturers voiced their discontent with the situation and are hoping De Beers will make more significant price reductions in October. They’re equally hoping that the expected seasonal spike in demand will help raise polished prices and improve their profit margins. With Diwali, Christmas and the Chinese New Year coming up, they may have better times to look forward to, after the cautious sentiment in the market throughout 2013 lingered in September.Article from the Rapaport Magazine - October 2013. To subscribe click here.
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