Advanced Search

Rough Market Restraint


Jan 31, 2014 5:00 AM   By Avi Krawitz
Comment Comment Email Email Print Print Facebook Facebook Twitter Twitter Share Share
RAPAPORT... The rough diamond price hikes that took effect in January did not surprise the market even if they were higher than expected. Most anticipated an increase as rough trading was fairly depressed in the second half of 2013 and inventory levels diminished. Since then, cutters in India have ramped up their operations after taking a break for Diwali in November and need rough to fill post-holiday polished demand.

Therefore, there was little shock when ALROSA reportedly raised prices at its sale that took place on January 14 to 17, and De Beers followed suit with an average 5 percent increase at its sight the following week. The sight was sold out and demand on the secondary market improved with premiums garnered on De Beers boxes for the first time in months. (A full account of the sight can be read here).

However, while demand has improved, sightholders did not foresee such far-reaching action by the mining companies. Historically, they noted, De Beers has been reluctant to raise prices in January until it has a complete assessment of the Christmas and Chinese New Year holiday seasons.

Moreover, while Christmas was positive for the trade, current polished demand is not exceptional. There has been an improvement in demand for GIA dossier certificated diamonds, with strong demand for 0.30-carat to 0.59-carat, SI goods, thus continuing the trend witnessed in 2013. But on the whole, there hasn’t been a significant push to raise polished prices in response to the rough price hikes. Nor should there be.

The diamond market is demand driven, and so the notion that polished prices will increase simply because rough prices rose is disingenuous. Therefore, just when some equilibrium appeared to be reached between rough and polished, and cutter’s profit margins have started to materialize, the polished market now finds itself playing catch up with rough – again.

It’s an occurrence that diamantaires have come to expect. In fact, there has emerged a cyclical nature to diamond trading that continues to pressure dealers and cutters, and which appears to be recommencing this month.

Rough prices are inclined to increase in the first quarter because cutters need rough to churn their factories and satisfy post-holiday season demand. While polished prices simultaneously rise, due to retailers replenishing the inventory they sold during the busy shopping period, the increases tend not to keep pace with rough.

The rough market stays strong until around April, when disappointment sets in that the polished market couldn’t keep up and trading subsequently cools. Sharper declines take effect around the beginning of the third quarter as liquidity tightens while profit margins erode. Polished suppliers struggle through until demand from the retail end picks up in the fourth quarter during Diwali, Christmas and the Chinese New Year. Finally, the positive holiday sentiment sets the rough snowball rolling again, presenting the illusion of a buoyant market come January.

Polished suppliers are naturally content that their profit margins improved in January as polished prices have edged up. The RapNet Diamond Index (RAPI™) for 1-carat certified polished diamonds increased by around 1.2 percent during the month. Though, it’s worth noting that current polished supply is the result of rough that was bought at least three months ago when rough prices were reduced.

Therefore, De Beers and ALROSA cannot be blamed for their price increases, considering the cycle. With relatively fixed costs, they can only ensure growth through price increases. They’re also in the business of maximizing profits whenever they can and sightholders would have bought more goods, even at these prices, if they were available in January.

However, the current strength in the rough market is viewed in perspective and cutters are concerned that the mining companies will take it as a cue to aggressively raise rough prices further in February. It’s questionable whether that could be sustained in the long run.

Already, diamond cutters are assessing what might emerge in the polished trade when the latest batch of rough comes to market in a few months. Will polished prices in April or May justify current rough prices?

There’s no doubt that the outlook for 2014 is positive and advances in the polished trade in January account for both the firm holiday season and better economic conditions. As this column noted in the past few weeks, economic prospects have improved in 2014 as the recovery of advanced economies such as the U.S., and to an extent Europe, gains momentum (see editorial, ‘Global Economic Growth,’ published on January 24, 2014).

That will leave rough dealers and cutters in a stronger position. In fact, they stand to enjoy steady growth, especially if they are able to break the cycle that has emerged. By now, the market recognizes that polished prices won’t have a knee-jerk reaction to rough price increases, as was evident this past week. And short-term rough trends are unlikely to shake the long-term fundamentals in the diamond industry. Polished suppliers will want to secure sustainable profits moving forward by managing the trading cycle more efficiently. To do so, they’ll need to show greater restraint in the rough market in the first quarter. 

The writer can be contacted at

Follow Avi on Twitter: @AviKrawitz and on LinkedIn.

This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to or contact your local Rapaport office.

Copyright © 2014 by Martin Rapaport. All rights reserved. Rapaport USA Inc., Suite 100 133 E. Warm Springs Rd., Las Vegas, Nevada, USA. +1.702.893.9400.

Disclaimer: This Editorial is provided solely for your personal reading pleasure. Nothing published by The Rapaport Group of Companies and contained in this report should be deemed to be considered personalized industry or market advice. Any investment or purchase decisions should only be made after obtaining expert advice. All opinions and estimates contained in this report constitute Rapaport`s considered judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Thank you for respecting our intellectual property rights.
Comment Comment Email Email Print Print Facebook Facebook Twitter Twitter Share Share
Tags: Alrosa, Avi Krawitz, De Beers, diamonds, Rapaport
Similar Articles
Comments: (0)  Add comment Add Comment
Arrange Comments Last to First
© Copyright 1978-2022 by Rapaport USA Inc. All rights reserved. Index®, RapNet®, Rapaport®, PriceGrid™, Diamonds.Net™, and JNS®; are registered TradeMarks.
While the information presented is from sources we believe reliable, we do not guarantee the accuracy or validity of any information presented by Rapaport or the views expressed by users of our internet service.