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Global factors shake industry

Prices continue to drop, but remain higher than at the beginning of the year.

By Joshua Freedman
The diamond market weakened significantly in April, but the downturn was more of a correction from its previous high level. Prices were lower than in March, but still high compared with a few months ago. The main cause of the decline was uncertainty emanating from three factors: the Russia-Ukraine crisis, the fresh Covid-19 measures in China, and high inflation in the US.

Manufacturers were unsure whether Alrosa’s rough — which constitutes about a third of the market — would remain available, and if so, whether the resulting polished would be marketable on American shores. Lockdowns in Shanghai added to the worries, as China’s recent recovery had been a boon for the global trade since mid-2020. Meanwhile, US consumer sentiment in early April was “lower than in any prior month in the past decade,” according to the University of Michigan’s Survey of Consumers.

Cutters cautious

The RapNet Diamond Index (RAPI™) for 1-carat stones dropped 3.1% between April 1 and 26. The index for 0.30-carat diamonds declined 2.1%, while 0.50-carat prices slipped 2% and 3-carat goods fell 2.3%. The 1-carat prices were still 10% higher than on January 1.

Rough prices also fell from their peak, especially in the smaller and lower-value categories, which had been the strongest segments in the first quarter.

Diamond businesses are “adopting a more cautious and watchful approach” due to the Ukraine war and the situation in the Far East, according to De Beers. Trans Atlantic Gem Sales (TAGS) withdrew many items from its April tender because they failed to reach their minimum prices. Petra Diamonds predicted that prices would soften.

“The overall uncertainty left rough manufacturers in a very cautious mood,” TAGS commented. While cutters continue to manufacture the inventory they purchased earlier in the year, “current purchases have been reduced, and rough prices have fallen sharply, particularly in sizes below 0.50 carats and low-quality material,” the Dubai-based company added. It forecast that rough prices would stabilize at levels similar to those of November and December 2021.

Jewelry strong

US retail demand was shaky going into one of the quieter periods of the year.

“Purchasing intentions [in April] are down overall from recent levels, as interest rates have begun rising,” reported Lynn Franco, senior director of economic indicators at The Conference Board, which provides business data. “Meanwhile, concerns about inflation retreated from an all-time high in March but remained elevated. Looking ahead, inflation and the war in Ukraine will continue to pose downside risks to confidence and may further curb consumer spending this year.”

Jewelry appeared to be outperforming the market, with the National Retail Federation (NRF) predicting record sales for the category this Mother’s Day.

“Jewelry remains a timeless gift selection for Mother’s Day and continues to capture an increasing market share,” said Phil Rist, vice president of strategy at Prosper Insights & Analytics, which carried out a survey on the matter together with the NRF. Total spending on jewelry will reach an estimated $7 billion for the holiday, he predicted.

The upcoming trade shows — including GemGenève in May, and JCK Las Vegas and Couture in June — are also likely to boost the industry following two years of disrupted exhibition schedules. While there are some reasons for caution, the overall outlook for the sector is optimistic.

“Although we anticipate some pullback in diamond prices from the elevated March tender levels as a result of the economic impact of the war in Ukraine, the structural shift in the diamond market continues to provide positive momentum,” said Petra CEO Richard Duffy.

Article from the Rapaport Magazine - May 2022. To subscribe click here.

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