Rapaport Magazine
Markets & Pricing

Trading slow as retail reopens

Miners are left with large inventories as rough buyers face travel restrictions and sluggish polishing activity.

By Joshua Freedman
The diamond industry showed both positive and negative signs in July. Retail markets continued to reopen following coronavirus-related lockdowns, with luxury retailers reporting sharp sales increases in mainland China. New York authorities gradually lifted restrictions, a move that boded well for consumer spending in the important hub. But at the same time, southern US states saw a surge in Covid-19 cases, Hong Kong endured a third wave of the virus, and the outbreak in India worsened by the day.

Polished prices saw strong growth. The RapNet Diamond Index (RAPI™) for 1-carat diamonds rose 1.2% between July 1 and 22, while the index for 0.50-carat goods jumped 3.1%. However, both increases reflected specific investment demand for D-color, internally flawless stones in those sizes. Prices for the 0.30-carat category climbed 0.9%, and the 3-carat RAPI was flat.

Taking stock

Dealers reported mediocre sales amid low consumer confidence. The bridal sector partly supported the market, with wholesalers seeing demand for round and oval, 1- to 2.75-carat, F to I, VS- to SI-clarity diamonds.

The Indian city of Surat, which produces more than 90% of the world’s polished diamonds, struggled to recover from Covid-19 shutdowns. While the government has lifted its closure order on factories, many manufacturing units planned to stay shut until the end of July. The country’s rough imports plummeted 69% to $302.9 million — or 4.4 million carats — in June, underlining the weak demand from cutters.

“Jewelry sales [are showing their] first signs of recovery after some counter-pandemic measures were lifted,” Evgeny Agureev, deputy CEO of Russian miner Alrosa, said July 22. “However, most cutting-and-polishing facilities still operate at reduced capacity, while polished diamonds demonstrate selective demand varying from segment to segment.”

Rough buyers showed little appetite for goods amid travel difficulties and the lack of polishing activity. De Beers and Alrosa continued to see weak revenues in June as their prices remained at February levels, while tender houses reduced prices and saw better sales. Dealers held low expectations for the two largest miners’ next trading sessions, scheduled for the final week of July.

The current crisis has transformed the industry’s inventory situation, leaving miners, rather than the midstream, holding large stockpiles. Alrosa’s rough inventory was up 65% year on year at 26.3 million as of June 30, since sales have slowed at a steeper rate than production.

Cautious optimism

Rough producers kept to their forecasts that the diamond market would pick up in the third quarter, showing a balance of optimism and caution amid the threat of further coronavirus outbreaks. Petra Diamonds and Mountain Province both planned tenders in September — subject to market conditions — after canceling sales during the second quarter.

Covid-19 will likely restrict retail sales, travel and rough trading “for the short term,” predicted Mountain Province CEO Stuart Brown. “We believe the market will start improving later in [the third quarter] and strengthen with the start of the major retail season toward the end of the year and into 2021.”

With the holidays getting closer, the question for retailers has been how to sell during that key period. Consumers appear to prefer physical stores to online, but jewelers have also increasingly shifted to digital sales formats. Signet Jewelers cited this trend as a reason for laying off some of the employees it had furloughed at the start of the pandemic.

Independents that own their stores have weathered the downturn better than larger chains, as they have less debt and don’t rely on mall traffic. However, the Christmas season will be critical — and if Covid-19 is still hampering consumer activity, the industry’s troubles might continue for a while.

Article from the Rapaport Magazine - August 2020. To subscribe click here.

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