Rapaport Magazine

Shifting Economies Impact Industry

The June trade show season indicated relative stability in the U.S. but a slowdown in Far East and Indian demand diminishes the outlook for the second half.

By Avi Krawitz

The RapNet Diamond Index (RAPI) is based on the average of the asking price for Round, D-H, IF-VS2, GIA Graded,
Rapaport Specification 2 or better diamonds, which are offered for sale on RapNet.
Diamond trading continued to be undermined by caution in June, with rough prices remaining out of sync with the resulting polished, and tight liquidity and economic uncertainty contributing to the lull.

The U.S. emerged as the best market for polished after the JCK Las Vegas show ended with reasonable trading. While the show did not signal a significant boom in the market, most exhibitors left satisfied that U.S. demand is stable in the near term.

Trading in India remains weak as the rupee fell to new lows and domestic consumption slowed. Far East demand quieted because of a reduced, more conservative outlook for economic growth, accompanied by volatility in the financial and commodities markets. Early reports from the June Hong Kong show indicated light traffic and cautious demand, with interdealer trading weakening toward the end of the month while the show was still underway.

There is a continuing and steady shift in preference for more affordable price points as cutters and dealers seek creative ways to make a profit. As a result, square-shape fancies have been selling well, particularly since there is a shortage of well-made fancies in the market. Demand for rounds has been weaker, with buyers focused on sourcing SI goods, where shortages are prevalent, as well as clean-make, triple EX goods.

There has been some price resistance from buyers, who expect that prices will decline in the coming weeks, given the weak economic sentiment. However, suppliers have held relatively firm, although there were reports that some reduced prices to spur sales at the Hong Kong show. As a result, a more pronounced downtrend in the RapNet Diamond Index (RAPI) has emerged. RAPI for 1-carat diamonds fell 1 percent during the period June 1 to June 25, while RAPI for .30-carat stones declined a slight .3 percent. RAPI dropped 1 percent for .50-carat diamonds and .6 percent for 3-carat stones during the period (see chart at right, top).

Many diamond manufacturers and dealers fear they are only as strong as their weakest link and that cash-strapped polished suppliers may be forced to slash prices in order to meet their obligations in the coming months.

Based on data published by the Gem & Jewellery Export Promotion Council (GJEPC)


Much of the overall market weakness stems from India, given its influence as the industry’s largest manufacturing and trading center. The country’s polished exports fell 44 percent year on year to $1.25 billion in May, while polished imports slumped 88 percent to $194.3 million, according to the most recently published data from the Gem & Jewellery Export Promotion Council (GJEPC). During the first five months of 2012, India’s polished exports fell 42 percent to $7.913 billion and polished imports declined 74 percent to $2.870 billion (see chart).

Sentiment remains fragile as the rupee continues to depreciate, having fallen by about
15 percent so far in 2012. The currency was trading above 57 rupees to $1 at press time. As the country’s overall pace of economic growth has slowed, domestic Indian retail demand has diminished and banks have constricted their lending — as they have in other diamond trading centers, too. In addition, manufacturing levels remain below capacity. Rough imports to India fell 20 percent to $1.14 billion in May but are up 9 percent to $6.6 billion for the first five months of 2012. With sales slumped, there is a sense that both rough and polished inventories are growing.

Based on data published by ALROSA

The sluggish market sentiment was evident at the June Diamond Trading Company (DTC) sight, which closed with an estimated value of $540 million before rejections. Reports from the sight indicated that sightholders did, in fact, defer some purchases, or left goods on the table. De Beers made slight adjustments to assortments that enabled the boxes to maintain their high-priced values, much to sightholder frustration. DTC reduced prices on some boxes and increased prices on others. The small sight was followed by weak trading on the secondary market, with most DTC boxes selling at list or below list prices.

DTC sales declined by 19 percent to approximately $2.83 billion in the first half of 2012, according to Rapaport estimates. Given the lower demand, De Beers has maintained its mining operations at below capacity after first-quarter production fell 16 percent year on year to 6.208 million carats.

Similarly, ALROSA reported that its first-quarter production fell 19 percent to 8.1 million carats (see chart at left). However, sales for the Russian miner rose 27 percent to $1.1 billion during the first three months of the year as the volume of sales increased and the company’s prices strengthened. ALROSA noted that prices for its gem-quality segment rose 5 percent from the fourth quarter of 2011. Prices are expected to have softened slightly in the second quarter of 2012, but not by much because ALROSA, like De Beers, has maintained unsustainably high prices.

Other mining companies have reported sluggish rough prices in 2012. “Rough diamond prices have remained flat since the beginning of the year,” Harry Winston’s management wrote in the company’s first-quarter report published on June 6. “The mood in the rough diamond market is cautious as retailers are reluctant to replenish polished inventory due to the impact of the current global economic uncertainties on the major retail markets, which has also led to reduced liquidity in the diamond market.”

Based on data published by Tiffany & Co.

The company noted that strong global demand for luxury products has boosted sales of high-end jewelry and of timepieces. Similar trends emerged at JCK Las Vegas where luxury traders had an especially strong show, compared to lower-priced midrange categories, while there was comparable positive feedback reported from the Couture and Antique shows.

However, Harry Winston cautioned that the luxury market could be impacted in the near term by global economic challenges, including the sovereign debt issues in Europe and the apparent slowing of economic growth in China. Still, the company noted that luxury retailers remain focused on the longer-term opportunities from continued expansion of distribution networks into the Asian market.

Already, Tiffany & Co. sales disappointed in the first quarter of its fiscal year as sales rose just 8 percent year on year to $819 million in the three months that ended April 30, 2012 (see chart at right). The Americas and Europe underperformed other regions. The company cut its outlook for 2012 “to reflect lower near-term expectations,” said Michael Kowalski, Tiffany’s chief executive officer (CEO).


Still, while De Beers and others expect the second half of 2012 to be better than the first half, none are projecting a boom in the market. Even as the Las Vegas shows signaled a relatively stable U.S. market, the Hong Kong show reflected uncertainty in the Far East and India. The global diamond market continues to face tight liquidity, low manufacturing profit margins and diminished consumer confidence. In light of that, while most in the industry are relieved to have survived the first six months relatively unscathed, they remain uncertain about the prospects ahead.

Article from the Rapaport Magazine - July 2012. To subscribe click here.

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