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The Pressure Is On
Jan 13, 2022 4:17 AM
By Avi Krawitz
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 RAPAPORT... The diamond industry has reason to be optimistic for 2022 after the excellent sales it witnessed last year. Fresh from the holiday season, the trade is justifiably upbeat as positive reports roll in about its bumper November and December period. The growth is a sure sign that consumers are connecting with jewelry for its emotional and physical appeal.
Of course, the pandemic worked in the industry’s favor. Consumers were unable to spend on travel and other experiences due to the lockdowns. They had also received government stimulus money and wanted to express their emotions to loved ones. Jewelry was a perfect fit for this narrative.
The industry can take some credit for spurring growth. It learned how to engage with consumers more effectively, tell better stories, embrace technology in both marketing and design, and strengthen its environmental, social and governance (ESG) credentials.
Those efforts stimulated demand, which helped accelerate polished price gains for the year. However, supply also played a significant role in the price dynamic as the industry tried to maintain balance within the market.
That wasn’t so easy in the Covid-19 environment. Back in 2020, polished inventory fell due to the lack of manufacturing. Factories then resumed operations, which encouraged rough buying. This, in turn, led to a record intake of polished for grading at the gemological laboratories during 2021. Inventory gradually rose, even as factories remained unable to return to full capacity because of the various new Covid-19 strains.
The industry began 2022 with high inventory, manifesting in a record number of diamond listings on RapNet. Yet polished prices continue to rise. This suggests that demand is outpacing supply, which would be a good dynamic for the market. However, there are other factors at play. The most important of these relate to expectations — of the volume and value of the rough supply entering the market, and of how much further suppliers can push up their polished prices.
It’s too soon to declare a speculative market. But it does feel that the industry is at a crossroads, with some degree of uncertainty as to whether the upward price momentum is sustainable in 2022.
That shifts the attention to the rough sector, particularly with the January sales cycle coming up. This is typically a peak month for rough demand, with large volumes selling and miners implementing price hikes. Should those conditions play out, it could tilt the market balance toward the supply side: The increase in supply would outpace demand, putting pressure on manufacturing profits.
In the January issue of the Rapaport Research Report, we explore the scenarios that could occur. Subscribers will also notice that this edition has a slightly different format than previous ones. Moving forward, the report will focus more on in-depth analysis of the diamond market, helping shed light on the accompanying supply and demand data. Our intention is to provide better insight into market conditions, which are becoming increasingly difficult to understand.
The industry needs to consider whether there is sufficient demand to absorb the high volumes of new polished that will soon become available, and whether there is enough profit to support each segment of the pipeline. Despite the positive sentiment of the new year, the industry must manage its expectations if it wants to avoid bursting its optimistic bubble.
This article first appeared in the January Rapaport Research Report. The report presents proprietary data on polished diamond prices, along with market intelligence and analysis. Subscribe to the report here. |
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Tags:
Avi Krawitz, De Beers, diamonds, Jewelry, polished prices, RAPI, RapNet, rough prices
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