Challenging economic conditions resulted in a sluggish diamond industry in October. The depreciation of the Indian rupee and the Chinese yuan increased costs for local dealers and lowered consumer sentiment in those markets. Concerns about the diamond midstream grew amid tighter bank lending to the Indian sector, the high cost of rough, and new reports of bankruptcies at Surat manufacturers. Those factors have affected the global rough and polished markets. Melee was especially weak, partly due to an oversupply of goods and mounting competition from laboratory-grown diamonds. Some Indian manufacturers are planning to shut early for Diwali, and see the break as a chance to stem a rise in their polished inventory levels.
Polished prices fell across the board: the RapNet Diamond Index (RAPI™) for 1-carat diamonds declined 0.4% between October 1 and press time on October 29. RAPI for 0.50-carat stones slipped 0.2%, while the index for 3-carat diamonds declined 0.5%. Prices of 0.30-carat diamonds dropped 1.5%, reflecting the slow market for smaller categories.
De Beers dip
The rupee’s devaluation dented demand for lower-value rough at De Beers’ October sale, CEO Bruce Cleaver acknowledged. The miner’s proceeds came to $475 million for its eighth sales cycle — the lowest this year. Still, some sightholders felt compelled to make purchases in order to maintain credit lines and secure future De Beers supply, according to sources. Buyers are worried about thin profit margins, even after the producer reduced prices by about 1%.
Mountain Province noted strong bidding prices for higher-quality, larger stones at its October tender, with prices of cheaper goods declining by percentages in the mid-single digits.
“We believe the price pressure is predominantly driven by the recent rapid weakening of the Indian rupee against the US dollar and, to some extent, the seasonal lower demand for rough diamonds ahead of the Diwali celebrations,” the miner added.
Alrosa has managed to capitalize on that demand for larger goods: Its rough sales rose 12% to $949 million in the third quarter as the average price jumped 26% to $142 per carat.
“Average realized prices for rough, gem-quality diamonds grew...driven by both general demand growth and a higher share of large diamonds [in the product mix],” the Russian company explained.
Mixed bag
Strong retail demand indicates that the dip in trading conditions for rough and polished dealers is only temporary. US consumer sentiment was high by historical standards in October, even though it dropped slightly during the month, according to the University of Michigan’s Surveys of Consumers. Jewelers are generally positive about the holidays, despite a volatile US stock market and unsettling events such as the bankruptcy of Sears Holdings Corp.
The Chinese market is mixed. Hong Kong-based jewelers continued to report large increases in revenue for the quarter that ended September 30, partly due
to the lower price of gold. However, the tariff war with the US has forced consumers in the greater-China region to watch their spending.
With the Indian retail market also shaky ahead of the important Diwali season, the US holidays
will be a highly important time
for the industry.
Article from the Rapaport Magazine - November 2018. To subscribe click here.