Rapaport Magazine

Trade Report

By Avi Krawitz
Demand Continues For Important Stones
High-end diamonds were strong in Basel but after-show trading was slowed by April holidays and tight liquidity.

The diamond and jewelry shows that took place in Basel, Switzerland, at the end of March and beginning of April signaled robust demand for high-end pieces, although visitor traffic was slightly down from 2013. The large European brands were actively looking for diamonds at both BaselWorld and the inaugural The Diamond Show, which was organized by the Rapaport Group.
   The Diamond Show, which ran concurrently with BaselWorld, featured 70 exhibitors from the U.S., Belgium, Hong Kong, U.K., Israel and India, exclusively showcasing diamonds at the Markthalle venue in Basel. Exhibitors at the show reported that while visitor attendance was relatively slow the first two days, important buyers attended during those days and foot traffic increased on the final two days of the show. Dealers noted that demand for commercial-quality goods was healthy although not booming, while interest in large and important stones remains strong. These trends have triggered high expectations that top-of-the-line diamonds will again fetch strong prices on the auction circuit during the rest of this year.
   Attendees at The Diamond Show and BaselWorld cited the following trends, which reflected conditions in the wider global market.
  • There is strong demand for Gemological Institute of America (GIA) dossiers, particularly for .30-carat to .70-carat goods. 
  • There is a shortage in the .30-carat to .40-carat category due to certification delays at the GIA.
  • There is rising demand for 2-carat to 3-carat SI diamonds.
  • Diamonds larger than 5 carats are strong but there are concerns that the market may be speculative.
  • Demand is good for intense, fancy colored diamonds. 
  • Demand is growing for colored gemstones. 
   There is steady demand for pears, cushions, ovals and emeralds in fancy shapes, while princess cuts are relatively slow. 
Trading Slows
   Activity in the trading centers slowed after the Basel shows because many businesses in Belgium and Israel closed during the Passover holiday. In addition, liquidity in the cutting centers tightened due to tougher bank credit conditions, high rough prices and continued backlogs at the GIA. There was also a sense that many wholesalers and retail jewelers already have replenished inventories that were depleted during the Christmas shopping season in the U.S. and Europe and during the Chinese New Year.
   During the period April 1 to 21, the Rapaport Diamond Index (RAPI™) for 1-carat certified polished diamonds fell .5 percent. RAPI for .30-carat diamonds declined 1.3 percent during the period, while RAPI for .50-carat stones decreased .9 percent. RAPI for 3-carat diamonds fell .6 percent during the period (see RapNet Diamond Index (RAPI™) chart in slideshow).
   The declines experienced during April reversed some of the strong uptrend witnessed during the first quarter of 2014. The positive momentum from the March Hong Kong show trickled to the trading centers but was limited by selective demand for goods. However, sentiment remained relatively upbeat compared to one year ago, particularly as diamond trading in Hong Kong is more active than before.
   Data recently published by the Diamond Federation of Hong Kong, China Ltd. showed that polished imports to Hong Kong rose 11 percent year on year to $4.39 billion in the fourth quarter of 2013, while polished exports increased 18 percent to $3.29 billion. Net polished imports, representing the excess of imports over exports, fell 7 percent to $1.1 billion during the quarter (see Hong Kong’s Quarterly Polished Diamond Trade in slideshow). Growth was driven by price increases as the volume of polished imports and exports through Hong Kong fell during the fourth quarter. Still, Hong Kong’s polished trade was consistently stronger in 2013 than in 2012, and is anticipated to have increased further in the first quarter of 2014.

Rough Prices Rise
   Polished buyers became increasingly price sensitive as cutters tried to raise polished prices after rough prices increased during April. De Beers raised prices by 3 percent to 4 percent at its April sight, while box assortments were left relatively unchanged. ALROSA reportedly kept its prices basically stable at its April trading session, having adjusted prices in March.
   Rapaport estimates that rough prices increased by approximately 7 percent to 10 percent since the beginning of 2014, helping boost mining company revenues. Dominion Diamond Corp. reported that rough prices increased by about 7 percent since the beginning of the year, while ALROSA said prices rose 4 percent.
   The De Beers sight, which was the third of the calendar year and took place from March 31 to April 4, had an estimated value of $700 million. De Beers rough sales increased by approximately 7 percent to $2.05 billion in the first quarter of 2014, according to Rapaport estimates — the company’s highest level of quarterly sales in recent years (see De Beers Quarterly Rough Sales chart in slideshow).
   Following the sight, trading on the secondary market slowed and premiums declined. Rough dealers noted that the market slowed for better-quality, clean diamonds, while high premiums were maintained for low-end goods. Some dealers argued that they refrained from buying better-quality diamonds that are certifiable because of the long turnaround time at the GIA.

Tightening Liquidity
   Dealers note there are a lot of goods in the pipeline, reflecting strong rough buying during the first quarter and the GIA-caused delays in moving polished into the market. As a result, liquidity has tightened in the cutting centers.
   Furthermore, the mining companies continue to increase their production. ALROSA’s production rose 6 percent year on year to 7.9 million carats in the first quarter of the year, with the company selling 12.7 million carats of diamonds during the period, of which 9.5 million carats were gem-quality diamonds. Rio Tinto’s diamond production rose 13 percent to 3.7 million carats during the same quarter (see Quarterly Production at ALROSA & Rio Tinto chart in slideshow). De Beers first-quarter production rose 18 percent to 7.531 million carats.
   The higher volume of rough coming to the market and a slowdown in the manufacturing process have tightened liquidity.Rough prices are expected to remain stable in the short-to-medium term while the trade monitors trends in the polished market. Many expect activity to slow in the coming months because the second and third quarters are traditionally periods with lighter trading. As a result, liquidity is anticipated to remain tight among manufacturers.
   Dealers will keep that in mind as the focus shifts back to the U.S. market in advance of the Las Vegas shows that open at the end of May. Just as they received the confidence boost they sought from the Far East at the March Hong Kong show, and from the high-end sector in Basel, they’ll be hoping the Vegas show will help regain some of the momentum that was lost in April. In all likelihood, the market will remain stable until then, with dealers trading with some degree of caution and restraint.

Article from the Rapaport Magazine - May 2014. To subscribe click here.

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Tags: Avi Krawitz