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Hanging in the Balance


Apr 6, 2012 1:41 AM   By Avi Krawitz
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RAPAPORT... The diamond industry ended the first quarter of 2012 with a sense of relief. Trading has ‎been steady but cautious and prices in March were relatively firm. While business has not ‎been booming, it could have been worse. The preceding third and fourth quarter of 2011 ‎certainly were. ‎

The diamond market mirrored trends in the global economy, in much the same way it did ‎in 2011. Cautious stability set in largely due to the absence of any major economic event ‎that might have tilted the balance. Or, perhaps the market caution was a symptom of the ‎real possibility that such a calamity might still occur. ‎

The European crisis is still spreading from Greece to Spain to Portugal and there are ‎indications that the pace of growth in India and China will slow this year. In contrast, rising ‎consumer confidence in the U.S. and bullish financial markets, which beat analyst ‎projections for the quarter, helped inject some positive diamond market sentiment.     ‎

Even with the apparently upbeat news from the U.S., global jewelry retail growth is ‎subdued, at least in volume, if not also by value. Certainly, any growth reported has been ‎spurred by jewelry price increases that took effect over the past year. Consumers are ‎shifting to lower price points and are prepared to compromise on size and quality to meet ‎their budgets.‎

Overall, diamond prices have held steady in the first quarter, particularly since the Hong ‎Kong show in mid-February and continuing through the end of March. The RapNet ‎Diamond Index (RAPI) for 1.00-carat certified diamonds fell 2.7 percent to 94.36 during ‎the quarter, as published this week in the Rapaport Research Report, “Slow Yet Stable.” ‎The sharpest declines occurred in February.  ‎

A number of factors influenced prices during the period. ‎

Polished inventories were still relatively large for most of the quarter. Excess inventory ‎and over-accumulation of diamonds at retail during the first half of 2011 meant that it ‎took a bit longer than the Christmas and Chinese New Year periods to diminish them. ‎Once depleted, wholesalers and retailers have been hesitant to replenish stock in any ‎significant way. Buying has been focused on order-based requests and speculation has ‎been notably absent from trading.‎

Significantly, India’s trading landscape has changed as the government introduced a 2 ‎percent import duty on polished diamonds. Diamantaires in the world’s largest cutting ‎center have curbed their round-tripping of diamonds and India’s foreign trade of polished ‎has slumped. Proposals to introduce further duties on jewelry items sparked a strike ‎among jewelry retailers. Liquidity has tightened as a result and confidence is down. ‎Furthermore, domestic diamond trading has been affected by the rupee’s volatility, while ‎consumers are still adjusting to higher gold prices by opting for lighter weight jewelry.  ‎

Almost paradoxically, Indian diamond manufacturers have increased their rough buying ‎in March spurring improvements in the rough sector. Still, rough supply from the major ‎mining companies, particularly De Beers, was restrained during the quarter. Even as De ‎Beers has forecasted continued retail jewelry growth in 2012, its lower production ‎strategy signaled its own market caution during the quarter. With lower supply, rough ‎prices have been steady and even firmed up since the March sight. ‎

The quarter also saw the influx of Zimbabwe’s Marange goods to the market in a ‎significant way after the Kimberley Process validated the Marange mines toward the end ‎of 2011. While these goods initially proved to be more profitable for manufacturers, ‎mainly in India, their prices have increased more recently. Furthermore, rough suppliers ‎appear unperturbed that the Marange diamonds could result in a general oversupply of ‎rough and influence softer prices in the wider market. They reason that the Marange ‎production is mostly suitable for the lower segment of the market and will therefore only ‎impact that sector.‎

Manufacturing levels are stable, but below capacity, reflecting the conservative approach ‎to building inventory. After all, despite encouraging reports of growth, global retail ‎demand remains modest. ‎

These trends are expected to continue in the second quarter of 2012, even as the spring ‎and summer wedding seasons hold some promise for the bridal retail sector. Many ‎expect general caution and stability to continue for most of the year until the market is ‎projected to pick up in a more significant way in the fourth quarter.‎

The question to restock and by how much will therefore continue to be governed by ‎economic conditions. One can assume that such decision making will be conservative ‎and restrained by uncertainty. Trade buyers do not want to get into an excess-inventory ‎position lest prices drop and their stock is devalued.   ‎

Thus the second quarter should pan out in much the same way as the first. And for now ‎that should be enough. Relative to previous downturns, the modest performance of the ‎first quarter was indeed a welcome relief. But even with the sigh of satisfaction about the ‎start of the year, trading is still hanging in the balance in Q2. ‎

The writer can be contacted at

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 © 2012 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

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Tags: Avi Krawitz, Bridal, De Beers, diamonds, Jewelry, Rapaport, RAPI, RapNet Diamond Index (RAPI)
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