Rapaport Magazine
Markets & Pricing

Consumer sentiment up

As stock levels even out and jewelry purchases rise, will lockdowns in India upset the balance?

By Joshua Freedman
The industry hit a point of uncertainty in late April as an intense Covid-19 crisis in India threatened the sector’s recovery. Infections soared in Mumbai, the heart of the trade, as well as in Surat, the city that produces more than 90% of the world’s polished diamonds.

The state of Maharashtra, which includes Mumbai, implemented tight restrictions to contain the outbreak. Export industries — including the diamond and jewelry trade — received an exemption, meaning manufacturing, sales and related operations could continue, and the Bharat Diamond Bourse could remain open. No lockdown was in place in Surat as of press time.

Still, there were concerns about the effects the situation would have on the supply chain. On the one hand, dealers anticipated polished shortages as India battled the virus wave, potentially boosting sellers in other locations such as Antwerp. On the other hand, a growing backlog of grading submissions at the Gemological Institute of America (GIA) — resulting from a recent jump in demand, as well as coronavirus-related capacity restrictions in India — exacerbated the anxiety. Traders feared there would be a sudden influx of inventory in the market once the laboratory returned the accumulated goods.

Pricing was mixed, with larger goods performing better than pointers. The RapNet Diamond Index (RAPI™) for 1-carat stones increased 0.6% between April 1 and 21, while prices in the 3-carat category climbed 1.6%. RAPI for 0.30-carat diamonds fell 0.5%, with the index for 0.50-carat goods slipping 0.3%. The Rapaport Group increased prices of select 1- to 3-carat diamonds on the April 23 Rapaport Price List, mainly in the IF to VS2 clarities.

Inventory stabilizes

The India challenges came just as the manufacturing sector was getting used to a healthier inventory situation than it had seen in recent years. Suppliers reduced their diamond stockpiles in 2020 during the Covid-19 downturn, and returned to buying rough in early 2021 in response to strong retail demand in the US and China. That meant miners were able to deplete the huge volumes of goods that had built up in their safes last year.

Meanwhile, some miners experienced production shortages. De Beers’ output fell 7% year on year to 7.2 million carats in the first quarter. The company blamed operational issues in Botswana and a Covid-19 shutdown at the Gahcho Kué mine in Canada.

“Supply of rough diamonds is [constrained] by production capacities [at] the mining companies,” Russian miner Alrosa said in an April 16 market update. “Global production in the midterm is expected to remain [around] 20% below its pre-Covid-19 levels. Midstream stocks of rough and polished remain balanced.”

Big spending

Consumer demand was positive, with sentiment in the US and mainland China markets indicating a strong recovery from last year’s lows. The National Retail Federation (NRF) predicted record jewelry spending ahead of Mother’s Day. At the same time, consumer sales of gold, silver and jewelry in China soared 83% year on year to CNY 25.9 billion (around $4 billion) in March, according to the country’s National Bureau of Statistics.

Hong Kong, an important destination for luxury retail, continued to struggle as tourists stayed away. However, a drop in coronavirus cases in the municipality bolstered local demand and raised hopes that visitors might soon enter from the mainland.

“With the successive introduction of vaccines, it is expected that the Covid-19 pandemic will gradually [subside], and the macroeconomy and retail sentiment, especially in the mainland market, will be further recovered,” said Hong Kong-based jeweler Luk Fook — which has stores across the region — in a mid-April statement.

The diamond sector finds itself in a strange situation: Consumer sales are looking promising, but supply issues could make it difficult to meet the demand. How the outbreak in India develops, and whether the trade remains lockdown-free, will have a big impact on the global industry.

Article from the Rapaport Magazine - May 2021. To subscribe click here.

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