Rapaport Magazine
Markets & Pricing

Prices still high

Has the industry become more skilled at handling the pandemic?

By Joshua Freedman
The diamond trade was positive in June as retail sales remained strong and polished prices continued to rise. However, with miners responding by increasing rough prices, dealers and manufacturers found themselves struggling to make profits.

De Beers raised prices of larger rough goods by around 5% at its June sight, and Alrosa’s customers were anticipating a similar move at the Russian miner’s latest sale, which was ongoing at press time.

The midstream was concerned that rough-price growth was outpacing that of polished. While steady demand and shortages in key categories were supporting polished prices, many dealers believed rough was disproportionately expensive.

Prices at rough tenders were also on an upward trajectory as buyers sought specific items to fill inventory gaps. Rough stones of 1 carat or more — which produce the most desired polished sizes — were especially hot.

“At today’s prices, if I were to buy anything at a tender, I could barely cover my overheads,” a manufacturing executive said on condition of anonymity.

Miners adapt

In the first half of last year, De Beers and Alrosa maintained policies of keeping prices stable rather than lowering them, even as the supply chain froze during the peak of the coronavirus crisis. They eventually made reductions in the second half of 2020 once demand had started to pick up. However, with sales now buoyant from mining through to retail, both are willing to let their prices follow market activity and supply trends. The two largest miners sold massive quantities during the first quarter of 2021 after amassing sizable inventories during the pandemic. This left few goods available to sell from April onward. With demand from Indian manufacturers mostly withstanding the country’s Covid-19 wave, the inevitable outcome has been price hikes.

“Basically everything that’s being produced…is being sold,” an Alrosa client observed.

Alrosa said it was “committed to a prudent approach” when it came to managing its sales and pricing strategy, noting that its priority was a “healthy and sustainable” balance in the market.

Sales rebound

Meanwhile, the RapNet Diamond Index (RAPI™) for 1-carat diamonds rose 2.3% between June 1 and 20, reflecting an appetite for engagement rings in the US. The RAPI for 0.30- and 0.50-carat stones gained by 0.9%, while the index for 3-carat goods advanced 1.1%. The supply issues also came from the polished side. Unprecedented demand for diamond grading perpetuated a backlog of submissions to the Gemological Institute of America (GIA). This exacerbated the situation, as goods remained stuck at the organization’s Indian laboratories for longer than usual.

These events coincided with resurgent consumer sales in the US and China as the countries’ economies continued to bounce back. May saw the American jewelry market’s fifth consecutive year-on-year increase in monthly retail sales, according to data from Mastercard SpendingPulse.

The trade started to focus on the 2021 holiday season, for which preparations usually begin in the summer. There was a particular spotlight on the JCK Las Vegas show, which fell victim to the wave of virus-related cancellations last year. The fair is scheduled to take place in August, about three months later than usual, making it a potentially important curtain-raiser to the festive sourcing period.

The uncertainty over the pandemic and possible new coronavirus strains also loomed over the industry.

But the sector’s ability to pivot to e-commerce and capitalize on consumers’ recent release of pent-up demand presented reasons for optimism.

“Today, we see very strong demand for diamond jewelry from end consumers,” Alrosa noted. “Together with relatively low polished and rough inventories [in] the midstream, this creates [a] lasting and sustainable diamond-market recovery.”

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

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