The diamond market improved in August as retail demand picked up and shortages emerged in the manufacturing sector. Months of reduced rough supply and lower polishing activity led to a healthier balance of inventory throughout the pipeline.
The industry hasn’t recovered from Covid-19, and further outbreaks and restrictions are still a threat ahead of the crucial holiday season. But diamond companies have benefited from the mostly sensible decisions they made during the crisis, executives noted.
Between April and July, De Beers and Alrosa allowed long-term clients to push off their contracted purchases to avoid flooding the market with rough. The miners kept rough prices at February levels to maintain the value of inventories across the market.
The Indian trade largely stopped importing rough during the pandemic, further helping prevent a glut. Cutting factories in the Surat manufacturing hub have now resumed at a limited rate, though the coronavirus is still ravaging the country.
“After being frozen for several months, [the] diamond business started getting back [into] motion,” Alrosa deputy CEO Evgeny Agureev said in an August 18 statement. However, the sector was still in a weaker position than at the start of 2020, he added.
Polished prices rose, with the RapNet Diamond Index (RAPI™) for 1-carat diamonds up 1.6% between August 1 and 20. RAPI for 0.30-carat stones grew 2.4% for the period, while the index for 0.50-carat goods jumped 2.6%. Prices in the 3-carat category saw a rare increase of 1%. Import and export figures for the major trading hubs also began to stabilize in July.
Filling shortages
De Beers acknowledged the improvement and, for its August trading session, ended its policy of allowing sightholders to defer 100% of their allocations. It also reduced prices of 1-carat rough and larger by 6% to 8%, sources reported, making it easier for manufacturers to buy the goods they needed to fill shortages.
Supply shortfalls could be a problem in the second half of the year, however. In India, cutters are seeking rough for production and have thin inventories, Alrosa CEO Sergey Ivanov observed.
Meanwhile, some American dealers worry there won’t be enough merchandise to meet the potential holiday demand. US polished imports fell 78% year on year to $1.19 billion in the second quarter, and were down 55% for the first half at $4.92 million, according to government data.
“I’m seeing a significant number of requests [for loose diamonds], and I’m seeing challenges on the other side [with] filling orders,” said Andrew Rickard, vice president of operations at wholesaler RDI Diamonds in Rochester, New York. “Inventory is going to be difficult in the diamond arena [for] the remainder of the year. There just weren’t any new goods that came into the States for three months.”
‘Fragile recovery’
With optimism rising, the industry’s ability to recuperate will largely come down to whether rough producers and polished manufacturers strike the right balance between meeting demand and preventing an oversupply.
Traders disagree about how significant any second-half rebound will be, as the coronavirus situation in the US remains uncertain.
Independent US jewelers were relatively positive going into the fourth quarter. However, there was a lack of clarity over further lockdowns and the impact they might have on sales.
In the Far East, while Chinese consumers returned to buying, the important Hong Kong luxury market remained slow as tourist traffic stalled.
“It’s a very fragile recovery,” a rough-market source said. “If a few irresponsible things were to happen, I think the market might just tip over again.”
Article from the Rapaport Magazine - September 2020. To subscribe click here.