Rapaport Magazine
Markets & Pricing

Trade report

Midstream profit under pressure

High rough prices concern manufacturers despite strong consumer demand.

By Joshua Freedman
The diamond market was slow in May, as Surat polishing factories were operating below capacity during the Indian summer break. However, expectations for the US market were high ahead of the important JCK Las Vegas show in the first week of June.

Two shows that took place in Europe in May brought a blend of positivity and slight pessimism. Traffic and sentiment was strong at the inaugural GemGenève, which ran alongside the Sotheby’s and Christie’s jewelry auctions in Geneva, Switzerland. However, attendance and feedback about the market were less optimistic at the second edition of Carat+, which took place in Antwerp.

Polished prices were also mixed. The RapNet Diamond Index (RAPI™) for 1-carat diamonds declined 0.2% between May 1 and press time on May 22. RAPI for 0.30-carat diamonds also dropped 0.2%, while the index for 0.50-carat stones grew 0.1%. Prices in the 3-carat category climbed 0.6%.

Zero profitability

The manufacturing industry became increasingly concerned about low profits, as rough-diamond prices climbed against the backdrop of sluggish polished demand. De Beers raised prices for certain larger categories at its May sight, which yielded proceeds of $550 million. Premiums for trading rough on the secondary market increased to 4.8% in May from 4.4% in April due to shortages, according to brokerage firm Bluedax.

“We had profitability in the first quarter, but now it’s shrunk to zero,” the CEO of an Israel-based cutting firm said. “If it carries on like this, it will be in the minus,” he added, referring to the possibility that the cost of buying and manufacturing rough would exceed polished sales.

Even so, the major consumer markets showed grounds for polished dealers to be hopeful. Global demand for diamond jewelry grew 2% to a record $82 billion in 2017, mostly due to a robust US economy and a recovery in greater China, De Beers said in a data release in May.

Eyes on US and China

Those key markets remained strong at the start of this year. US consumer confidence increased in April amid positive expectations about business and jobs, according to the Conference Board, an economic-data provider. Retail sales of gold, silver and jewelry in China rose 6% in April, following a 7.5% improvement in the first quarter, according to the country’s National Bureau of Statistics.

US retail chains J.C. Penney and Macy’s both identified jewelry as leading product groups in the three months ending May 5, while Richemont — the owner of Cartier and Van Cleef & Arpels — reported a 9% revenue jump for the category in the fiscal year that closed March 31.

However, that strong retail sentiment has only had limited positive impact on diamond dealers to date. Manufacturers hope that will change in the months to come.

Article from the Rapaport Magazine - June 2018. To subscribe click here.

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