July is known to be a slow month for the diamond trade, as
the US wholesale market effectively shuts down for its summer vacation. This
year, many dealers in Belgium and Israel shifted to holiday mode even before
their respective August breaks, observing sluggish activity in the
polished-diamond market.
The lull gave dealers a chance to reflect on how 2017 has
evolved so far. Recent data from both the trading centers and the mining
companies gave some insight into trading conditions during the first half of
the year.
Manufacturers saw some improvement in their profit margins
this year, after rough prices fell in 2016. The major mining companies,
meanwhile, reported a drop in average prices compared to last year’s first
half, with De Beers noting strong demand for lower-value rough.
Miners ended 2016 with larger-than-usual inventory of
low-value goods as Indian manufacturers — which drive demand for these diamonds
— withdrew from the market at the end of the year after the government’s
demonetization policy caused liquidity to dry up. Demand for these smaller and
lower-quality diamonds improved in the first half as the market acclimated to
the new currency environment.
On a like-for-like basis, De Beers’ rough price index rose
4% year on year during the period, while Rapaport estimates showed rough prices
increasing about 3%. Consequently, manufacturers’ profit margins have started
to come under pressure again amid a combination of consistent strength in the
rough market and continued caution in polished trading during the first half.
Polished prices — as measured by the RapNet Diamond Index
(RAPI™) for 1-carat diamonds — declined 2.5% during the six months and
continued to soften in July. RAPI for 1-carat diamonds fell 0.6% from July 1 to
press time on July 26. RAPI for 0.30-carat diamonds slid 1.4%, and RAPI for
0.50-carat diamonds dropped 2.9%. RAPI for 3-carat diamonds edged up 0.3%
during the period.
Dealers and manufacturers expressed concern that the
downward price trend would continue through the third quarter, as demand has
been down in the slow season, and supply this year has increased. The number of
unique diamonds listed on the RapNet diamond trading platform rose 20% over the
first seven months, and was up 17% from a year earlier.
This increase in available goods reflects the fact that
manufacturers bought significantly more rough in the first half of the year.
Rough imports to India, where a vast majority of diamond manufacturing occurs,
grew 14% by value year on year; by volume, they jumped 33%.
Projections show inventory continuing to build up in the
midstream throughout the third quarter as trading remains slow; the bourses in
Israel and Belgium effectively close down during August, and fresh polished
continues to enter the market, since rough that was bought in the first half is
still being processed.
Dealers also noted that trading activity did not measure up
to last year’s levels. Belgium’s polished exports fell 9% in the first half
compared to last year, and polished exports dropped 6%, according to data from
the Antwerp World Diamond Centre (AWDC). Belgium’s exports to the US fell 19%,
and those to Hong Kong dropped 16%.
The level of orders from the US has disappointed since the
Las Vegas shows in June, dealers observed. However there are signs that
activity in Asia Pacific is improving as the China and Hong Kong retail
environment awakens from its two-year slump.
US retail sales have been mixed, but the market is still
considered stable as a whole, explained Johan Dippenaar, CEO of Petra Diamonds.
At the same time, there is continued evidence of an improving retail market in
China and a recovering market in India, he added.
The industry is looking toward the September Hong Kong
Jewellery and Gem Fair for signs that retail revival is sustainable and
translating to improved diamond trading activity. By then, presumably, US
retailers will also have started ramping up orders for the fourth-quarter
holiday period. With that in mind, dealers are assessing their inventory during
the quiet vacation period, hoping the current slowdown is merely seasonal.
Image: Svetlana ShelestArticle from the Rapaport Magazine - August 2017. To subscribe click here.