Rapaport Magazine
Markets & Pricing

Inventory imbalance persists

Polished prices have lost momentum as supply piles up, while rough shortages continue.

By Joshua Freedman
The diamond industry showed mixed signals ahead of the holidays. While the market continued to recover, there were indications that this positive pattern was lessening. Polished prices were higher than before the Covid-19 pandemic, but they were losing momentum.

The RapNet Diamond Index (RAPI™) fell in three out of the four major categories from October 1 to 24. Prices of 0.30- and 0.50-carat stones saw the heaviest declines, dropping 0.9% and 0.6%, respectively. RAPI for 1-carat goods slipped 0.2%, while the index for 3-carat diamonds rose 0.2%.

The sharper dip in the smaller goods reflected growing inventory levels. The number of 0.30- and 0.50-carat stones on RapNet more than doubled during the first nine months of the year, while availability of 1-carat diamonds fell.

China sluggish

The inventory change partly reflects a weakening of the Chinese market, where items under 0.50 carats are popular. In recent months, the nation has seen coronavirus resurgences, power supply issues, and a real-estate crisis, sapping consumer confidence. In September, China saw its first decline in manufacturing activity since February 2020, according to a major Chinese index that measures sentiment among factory owners. Meanwhile, financial difficulties at property giant Evergrande have had a negative impact on consumer sentiment nationwide.

“It’s become very, very slow during the last three months,” said Ephraim Zion, founder of Hong Kong-based jeweler Dehres.

This has raised concerns ahead of the important Chinese New Year, which falls out on February 1, 2022. The global diamond industry has become accustomed to robust retail sales in both the US and Asian markets over the past year.

In light of this, De Beers struck a cautious tone in its annual Diamond Insight Report ahead of the peak season. Sales this year may seem low in comparison with the buoyant 2020 holiday period, it said, as the pandemic continues to foster uncertainty.

“We think we do see some increases in Covid-19-related issues around the world, especially in Asia,” said Esther Oberbeck, De Beers’ senior vice president for strategy analytics. “Globally…we should keep [a] more cautious outlook. But there is no doubt everything we hear for the US festive season is very, very strong.”

Product strong

On the plus side, consumer spending has not shifted back to travel and experiences as quickly as many observers anticipated. Travel experts now expect a more gradual return to jet-setting, Oberbeck reported.

“The fact that people couldn’t spend as much on experiential [activities] as they did before, combined with high rates of savings in the US…has been a factor [in the success of jewelry],” she said. “It’s not only our product that has been very strong; other product sectors have also been strong, especially around home furnishing [and] the art market — but also jewelry.”

Global diamond jewelry sales will likely jump by around 23% year on year to more than $90 billion for 2021, according to estimates by Alrosa. The Russian miner also predicted a widening rough-supply deficit over the coming years, reflecting lower production and solid end demand. The supply shortfalls affected the market in October, after Alrosa’s September sales slid 11% year on year to $298 million — the lowest since the start of the year. This was due to both a slowdown in the market’s recent rebound, and the fact that there was less rough available to sell than in 2020.

Both Alrosa and De Beers have been working with depleted inventories after selling large volumes in the first quarter.

“Today, we sell everything we produce immediately,” an Alrosa spokesperson explained.

The midstream is likely to slow during November as Indian manufacturers close for the Diwali festival. But eyes will still be on the key retail markets during the important final months of the year.

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

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