The diamond market was quiet in July due to the summer break. While polished traders sought bargains during this slower period, suppliers often refused to reduce prices, confident of being able to sell the goods after the vacation. Dealers also struggled to replace their merchandise amid a scarcity of nice-quality diamonds. High rough prices have prompted Indian manufacturers to limit their polished production, creating a gap in supply of certain categories. In addition, miners have cut back their output compared with last year, amplifying those shortages.
Less for their money
The Chinese yuan fell 5% to CNY 6.79 per dollar between June 1 and July 23, a consequence of the US-China trade war. That affected the Hong Kong dealer market, as jewelers in the region held back purchases because of high prices.
The devaluation of the rupee — down 3% to INR 68.94 per dollar in the same period — also impacted the sector, since Indian companies buy diamonds in the greenback and supply them to the domestic market for sale in local currency.
Polished prices were mixed. The RapNet Diamond Index (RAPI™) for 1-carat and 0.50-carat diamonds slipped 0.2% between July 1 and July 23. RAPI for 0.30-carat stones declined 0.5%, while prices of 3-carat diamonds increased 0.6%.
Rough is expensive, leading to tight manufacturing margins. De Beers’ rough-price index rose 1.6% year on year in the first half of 2018 amid positive forecasts for consumer demand. It also raised its production 3% to 9 million carats during the second quarter in response to good trading conditions, while sales volume skyrocketed 69% to 10 million carats.
Alrosa noted a strong rough market, with the usual second-quarter slowdown absent this year. Its average selling price went up 18% year on year to $164 per carat in the April-to-June period, driven by strong demand and low inventories among cutters, the miner explained.
The trade war zone
The US retail market has been slow during the summer, but overall sentiment is high. Favorable job and income prospects
are supporting consumer sentiment, even as the US-China trade war has raised certain concerns among Americans about the impact on the domestic economy, according to a survey the University of Michigan published July 13.
Meanwhile, Asian demand continued to improve, with sales of gold, silver and jewelry in China rising 8% to $3.26 billion (CNY 22.1 billion) in June. Revenue from jewelry, watches, clocks and other valuable gifts in Hong Kong increased 24% to $877 million (HKD 6.88 billion) in May.
The region’s jewelry retailers have enjoyed stronger performances than last year. Luk Fook’s average selling price for gem-set products rose by a double-digit percentage at its Hong Kong stores in the first fiscal quarter, which ended June 30. However, dealers are noting a general shift in demand to lower-value diamonds, especially in light of the weaker yuan, according to Rapaport sources.
Concerns linger in the key consumer markets, but traders
are confident overall for the rest
of 2018.
Article from the Rapaport Magazine - August 2018. To subscribe click here.