Industry
Some Light in a Tough Market
Supply shortages and steady U.S. holiday demand are supporting the diamond market but sentiment remains relatively weak.
By Avi Krawitz
The hype surrounding the special stones that burst onto the diamond scene in November stood in sharp contrast to the rest of the market. At least the Blue Moon of Josephine diamond that sold at Sotheby’s for a record-breaking $4 million per carat and the recovery of a 1,111-carat wonder at Lucara Diamond Corp.’s Karowe mine in Botswana served as a reminder that diamonds still have the romance and value to stir unparalleled interest among consumers and investors alike. (See Over The Moon in the Auction section).
The industry is hoping that buzz will influence consumers to buy more commercial-quality diamonds this holiday season. If ever the trade needed a holiday season boost, it is this year, given the tough environment it has navigated throughout 2015.
Sentiment was relatively weak in November as wholesale demand remained sluggish compared to previous years, even if it improved from levels seen in September and October. However, polished trading improved slightly toward the end of the month, supported by shortages and steady U.S. holiday demand.
That was enough to stop the downtrend in polished prices during November, with the RapNet Diamond Index (RAPI™) heading for its first monthly increase in six months. RAPI for 1-carat, Gemological Institute of America (GIA)–graded diamonds rose .9 percent during the period November 1 to 23. RAPI for .3-carat diamonds increased 1.9 percent and RAPI for .5-carat diamonds grew .5 percent. RAPI for 3-carat diamonds fell .3 percent during the period (see RapNet Diamond Index [RAPI™] chart in slideshow).
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Meanwhile, Hong Kong’s polished imports dropped 20 percent and its exports slipped 10 percent during the quarter, signaling continued weakness in the Asia Pacific region (see Hong Kong Polished Diamond Trade chart in slideshow).
Hong Kong-based jewelers are under pressure and have warned of a steep drop in profits for the half year that ended on September 30. Dealers note that those jewelers have also curtailed their store expansions and consequently cut down on their diamond purchases (see Retail Bulletin in the Rapaport December 2015 print edition).
The World Gold Council (WGC) noted in its quarterly gold demand trends report that the jewelry market in China and Hong Kong remains cautious as credit conditions remain tight. There is also greater competition among suppliers during a period when growth has slowed. Expectations have been raised somewhat as gold slumped to a five-year low in November, which may spur consumer interest in gold jewelry and as Chinese New Year orders have started to trickle in.
Similarly in India, jewelers are expected to benefit from a mini gold rush during the ongoing wedding season, which follows Diwali, although the drop in prices has been partly offset by the rupee depreciation.
Diamantaires are hoping the combination of Diwali, Christmas and the Chinese New Year will help diminish their high inventory levels. There is concern that dealers are stuck with a large quantity of unsalable lower-quality goods — such as visible piqué and black VS diamonds with inclusions and fluorescence. There are also very few fresh goods coming onto the market as Indian manufacturers basically closed their factories for a month over Diwali.
Manufacturers consequently avoided the rough market and curtailed polished output in the hope that a supply shortage will spur stronger and more profitable trading in 2016. Many didn’t even bother to attend the De Beers November sight, which had an estimated value of just $70 million.
De Beers enabled extra flexibility at the sight in response to the slump in sightholder demand. Many sightholders also endorsed De Beers decision to keep prices stable at the sight out of concern that a price cut might influence polished prices to drop further (see Rapaport’s response to such sentiment in Rough Bubble Bust in the Cover Story section). Trading on the secondary market was subsequently very quiet, with sightholders expecting rough demand to stay low until the end of the year.
Mid-tier miner Lucara acknowledged that there is an oversupply of specific quality and size goods across the diamond distribution chain and foresees continued weakness in smaller, lower-quality goods due to the current high levels of inventory held. The company reported that its sales were flat at $90.9 million in the third quarter, with its average price achieved jumping 55 percent due to a more successful special stone tender that took place in July (see Lucara Diamond’s Sales & Average Price chart in slideshow).
However, most recognize that those special stones are bucking the trend of the general market at the moment. William Lamb, Lucara’s chief executive officer (CEO), explained that its large stone production enables it some differentiation in the current market. Similarly, David Bennett, worldwide chairman of Sotheby’s jewelry division, hinted at a separation between very special stones and the overall polished market.
“The two are rather distinct markets,” Bennett told Rapaport Magazine. “Stones of this level of quality and rarity haven’t been noticeably affected by the downturn, but you could say there has been a slight softening at the lower end of the market, which is much more price sensitive.” Still, diamantaires are hoping the interest that these special stones have generated in November will influence stronger demand for the commercial market in the months to come.Article from the Rapaport Magazine - December 2015. To subscribe click here.
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