It’s been a tough month for the diamond industry. While large miners are likely to record modest growth for the year, and many retailers are expecting a strong holiday season, the midstream is struggling with sluggish polished prices and thin margins.
The RapNet Diamond Index (RAPI™) for 1-carat diamonds fell 0.9% between December 1 and press time on December 24. RAPI for 0.30-carat polished slid 3.6%, reflecting continued weakness in small-stone demand. Prices of 0.50-carat diamonds declined 1%, while the index for 3-carat stones dropped 1.8%.
Indian manufacturers returned from the Diwali festival, during which many factories closed for three weeks in November. However, polishing firms kept production below capacity, as they’re struggling with an oversupply of goods, especially in the smaller sizes. Manufacturing levels are likely to rise in the coming weeks as the midstream anticipates post-holiday restocking.
Small stones stabilizing
De Beers’ December rough sale was the largest since June as Indian buyers returned from their break, preparing to raise polished production ahead of the seasonal new-year demand. The miner kept prices unchanged from the November sight, when it lowered them in response to slow small-stone demand.
Demand for lower-value rough diamonds was stable again after recent weakness, miners noted. Alrosa’s proceeds fell 18% year on year to $274 million for the month, but sales were higher than in October due to the apparent improvement in the cheaper goods.
“We still see a lot of potential for the increase in demand for rough diamonds from the Indian diamond-cutting sector, which is still having trouble with access to credit,” Alrosa deputy CEO Yury Okoemov stated in mid-December.
Oversupply issue
There has been a surplus of lower-value goods this past year since a number of new mines came on stream in late 2016 and early 2017. That situation should improve, as De Beers expects its production to drop to between 31 million and 33 million carats in 2019 from 35 million to 36 million last year.
The industry is likely to work down some of the small-stone inventories in the next two to three years, Mark Cutifani, the CEO of De Beers parent company Anglo American, predicted in an investor call in mid-December. “We don’t want to add to that volume, [and] that’s why we’re not really pushing our own volumes beyond what we’re showing in the guidance,” he added.
Alrosa plans to sell 38 million to 39 million carats in 2019, despite having enough goods available to offer 41 million carats, as it doesn’t wish to flood the market with rough. “We believe it is useful for the market when supply increases gradually,” the miner told
Rapaport Magazine.
Retail cheer
The retail sector is looking more positive, especially in the crucial US market. Jewelry sales rose 4% globally and in North America in the third quarter, according to Alrosa. Consumers had confidence to spend over the holidays due to strong employment, increasing wealth, and tax cuts, said Jack Kleinhenz, chief economist at the National Retail Foundation.
“Consumer spending remains solid and clearly provides evidence that the economy is healthy as we head into 2019,” he added.
However, until diamond cutters and traders benefit from that growth, the celebration in the industry will be limited.
Article from the Rapaport Magazine - January 2019. To subscribe click here.