The diamond market showed some improvement in August. Manufacturers lowered their inventories by purchasing less rough and producing lower polished volumes, partially easing the oversupply that had been plaguing the market in recent months.
“Stock levels of some of the more in-demand goods are being reduced,” said Dudu Harari of brokerage firm Bluedax in a market report. “However, traders still have high levels of dead stock.”
Prices fell in most major size categories, but the rate of decline slowed. The RapNet Diamond Index (RAPI™) for 0.30-carat polished slipped 0.3% between August 1 and 28, while RAPI for 0.50-carat stones dropped 0.8%. The large-stone sector remained weak, with prices of 3-carat diamonds sliding 1.3%. The index for 1-carat diamonds was flat, reflecting steady US bridal demand. The market for that size has also been solid for G to J, SI to I1 goods.
Currency impact
Liquidity in the Indian market was low amid tightened bank lending and the depreciation of the Indian rupee against the US dollar, which has made diamond purchases expensive for importers. The sharp decline of the Chinese yuan in August also dented demand in that market.
Expectations for the September Hong Kong Jewellery & Gem Fair were low. The US-China tariff war has hurt the region’s appetite for jewelry, and anti-government demonstrations in Hong Kong have further dampened sentiment and caused retail stores to close temporarily.
Lower rough demand from cutting firms weighed on miners, with De Beers’ sales falling 44% year on year to $280 million in August. De Beers offered more flexibility than usual, allowing sightholders to hold back rough purchases to help work down their inventories. Alrosa reduced its full-year sales forecast following a slow first half. Mining companies with a small-stone focus were under severe pressure due to the weakness in that segment. Canada-based Stornoway Diamond Corporation and Mountain Province both received warnings of a potential delisting from their respective stock exchanges, while Trans Hex’s CEO resigned amid uncertainty about the South African producer’s ability to stay
in business.
Recession fears
Retail demand has been shaky amid fears of a possible downturn in the US and the impact of trade disputes on the economy. The US Federal Reserve’s first interest-rate cut since 2008 also prompted concerns, with American consumer confidence falling in early August, according to the University of Michigan’s Surveys of Consumers. “Consumers concluded, following the Fed’s lead, that they may need to reduce spending in anticipation of a potential recession,” said the research body’s chief economist, Richard Curtin.
Asian demand was mixed, as positive figures for mainland China helped offset weakness in Hong Kong. “In China, economic growth continues, though at a slower pace,” Hong Kong-based jeweler Chow Sang Sang said August 28, noting that jewelry sales would benefit from such an expansion.
However, the depreciating yuan has continued to impact Chinese tourists’ spending worldwide. The Hong Kong protests have intensified that problem, as visitors are a major source of revenue for the municipality’s luxury sector. “We believe companies with a robust presence in mainland China will feel the least impact from the Hong Kong sales decline,” stated Oliver Chen, an analyst at investment bank Cowen.
Article from the Rapaport Magazine - September 2019. To subscribe click here.