Sentiment was mixed in November. US retail looked positive as the holidays approached, but troubles in India and China contributed to a sense of caution. Lower-value polished goods continued to perform poorly in a tough environment for Indian manufacturers, with melee moving especially slowly.
Indian cutters suffered from tight bank credit, a weak rupee, and the impact of recent bankruptcies. Rough was relatively expensive, resulting in narrow margins for the midstream. Tariff disputes with the US dented the value of the Chinese yuan, creating concerns about consumer and dealer demand in the region. Competition from lab-grown diamonds also intensified.
Bread-and-butter polished goods still showed a solid performance ahead of the crucial US season. The RapNet Diamond Index (RAPI™) for 1-carat stones grew 0.5% between November 1 and press time on November 26, while prices of 0.50-carat diamonds increased 0.2%. However, RAPI for the 0.30-carat category slipped 0.1%, reflecting weakness in the smaller sizes, and the index for 3-carat diamonds fell 0.8%.
Sizing up the market
Cheaper rough categories struggled due to the state of the corresponding polished segment. De Beers reduced prices of lower-value goods at its November sight in response to sluggishness in the Indian market. Alrosa also noted a decline in that area, but still expects 2018 full-year sales to exceed last year’s, as buyers have shown strong demand for pricier rough.
“While demand for smaller, lower-quality rough diamonds continues to see some challenges, the latest cycle saw some signs of improvement in this area as factories in India begin to reopen after Diwali,” reported De Beers CEO Bruce Cleaver.
The conditions continued to affect the performance of mid-cap diamond producers. That sector has seen an oversupply of goods since three mines came on stream in late 2016 and early 2017: Mountain Province’s Gahcho Kué, Firestone Diamonds’ Liqhobong mine, and Stornoway Diamond Corporation’s Renard asset. Share prices of all three companies fell in November and were down by more than 50% for the year to date.
E-commerce success
US consumer sentiment slipped in November by a larger margin than economists had expected, though the level was still relatively high, according to the University of Michigan’s Surveys of Consumers.
Retail forecasts for the holidays are positive, but jewelers are set to miss out if they lack a good e-commerce platform. Online sales grew 20% year on year for the period from November 1 to November 26, coming to $58.5 billion, and Cyber Monday alone generated an estimated $7.9 billion, according to Adobe Analytics data.
“If [retailers] can’t do well in this environment, with record-low unemployment, consumer confidence at multi-decade highs, weekly jobless claims really low, job openings over 7 million, I don’t know when they’re going to,” said Ken Perkins, president of research group Retail Metrics, in a Bloomberg TV interview at the end of the month.
However, retailers were cautious about Chinese consumer demand due to the weak yuan, and the Indian retail sector has been mixed following currency fluctuations and jewelers’ difficulties obtaining credit. As is often the case, many traders will need a good US holiday season to support their business.
Article from the Rapaport Magazine - December 2018. To subscribe click here.