The industry remained weak in February as disappointing holiday sales led to slower restocking than usual for the time of year. US-China trade tensions and wider economic and political uncertainty continued to impact consumer demand in America and the Far East, after hitting global demand in the second half of 2018. Meanwhile, the combination of high rough prices and sluggish polished demand squeezed manufacturers, with continued low margins and reports of bankruptcies in the Indian cutting sector.
There was a slight improvement over the previous month as traders prepared inventories for the Hong Kong International Diamond, Gem & Pearl Show and the Hong Kong International Jewellery Show, which were due to take place in late February and early March. The RapNet Diamond Index (RAPI™) for 1-carat polished stones was flat between February 1 and 24, compared with declines of 0.4% for the whole of January and 1.2% in December. RAPI for 0.30-carat diamonds fell 0.5% in the first 24 days of February, while prices for 0.50-carat goods retreated 0.4%. The index for 3-carat diamonds slid 0.9%.
Tough for rough
Mining companies saw depressed sales at the start of 2019 as last year’s second-half slump maintained its influence on the market. Cheaper polished categories suffered from slow demand and an oversupply in the July-to-December period, putting pressure on the manufacturing sector, De Beers said in a February 21 report.
“This resulted in a surplus of low-priced polished diamonds at the end of the year, leading to lower sales at the start of 2019,” it said. De Beers’ rough-diamond proceeds fell 25% year on year in January, with sightholders rejecting more goods than normal, a broker told Rapaport Magazine.
Petra Diamonds noted improvements at the beginning of the year, with prices at its February tender climbing 1% on a like-for-like basis compared to the previous six months. However, while demand has stabilized somewhat, buyers are still cautious, noted outgoing Petra CEO Johan Dippenaar, citing the tariff war as one factor. “It [would] be incorrect to say that there is exuberant confidence in the market,” Dippenaar said in a February 19 investor call transcribed by Seeking Alpha.
Retail rebounds
US consumer confidence improved in early February relative to the previous month, buoyed by the end of the partial government shutdown and the Federal Reserve’s decision to pause its interest-rates hikes, according to the University of Michigan’s Surveys of Consumers. However, subpar holiday sales injected concern into the market: December saw the worst slowdown in retail sales since 2009, according to government data and media reports.
Retail revenues in China increased 8.5% to CNY 1.01 trillion (about $150 billion) during the seven-day Lunar New Year period ending February 10, though growth was slower than the previous year, according to the Ministry of Commerce. The upcoming Hong Kong shows should give dealers a sense of how 2019 will be for the Far East, after last year’s political events damaged consumer demand and dented the value of the Chinese yuan.
“Although current economic forecasts remain positive, the outlook for 2019 global diamond-jewelry consumer demand faces a number of headwinds, including the risk of a potential intensification of US-China trade tensions...and further exchange-rate volatility,” said De Beers.
Article from the Rapaport Magazine - March 2019. To subscribe click here.