Late September and the first half of October were seasonally
quiet as polished-diamond trading in Israel, Belgium and the US entered
vacation mode due to nearly a month of Jewish holidays. As these markets began
returning to action, the earlier-than-usual Diwali festival on October 19
effectively shut down India: Manufacturers started closing their businesses
sooner than in previous years, resulting in lower polished production and
sluggish demand.
Meanwhile, high levels of rough buying and manufacturing —
mainly by Indian companies — in the first half have resulted in an oversupply
of polished. This overstock has been larger than usual this year, according to
Sarine Technologies, which suffered a drop in its third-quarter sales as the
midstream reduced its purchases of manufacturing equipment.
Nonetheless, this phenomenon is part of a regular cycle,
Sarine explained in an October trading update. Toward the end of the second
quarter and the start of the third, it said, “there evolves an oversupply of
polished diamonds in the midstream, which creates pressure on polished-diamond
prices.”
The RapNet Diamond Index (RAPI™) reflected this dip in
activity, at least in the smaller sizes. RAPI for 1-carat diamonds declined
0.3% between October 1 and press time on October 22. RAPI for 0.30-carat
diamonds dropped 0.2%, while RAPI for 0.50-carat diamonds fell 1%. RAPI for
3-carat stones, however, increased 0.2%, reflecting an improvement in the
market for large diamonds, especially those with higher clarity.
Weakness in the polished sector in turn affected rough
trading. Following a bullish market in the first half, demand has been wobbling
since the summer, with premiums for De Beers goods on the secondary market
virtually wiped out in the October sight. De Beers’ sales for the month fell to
$370 million — the lowest since late 2015 — as the miner held back supply to
avoid reducing prices.
The early closures in India also affected Alrosa’s sales,
which slid 32% year on year to $309.7 million in September. Additionally, the
miner, which usually requires clients to purchase at least 70% of its goods,
reduced that quota to 50% for this sale, reflecting the sluggish market. Petra
Diamonds, meanwhile, noted a 2% drop in rough prices at its October tender.
Still, consumer demand is steady in the US and improving in
Asia, allowing the trade to display some confidence about the holiday season.
This should enable the midstream to work down some of its inventory. Come
January, however, retailers will be looking to stock up again, likely resulting
in increased polished demand. Manufacturers eager to fill those orders will
have to be careful not to overproduce and create a repeat of the oversupply
crisis.
Article from the Rapaport Magazine - November 2017. To subscribe click here.