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Diamond Prices Slide in June!

2016-07-07


Polished diamond prices softened in June after the important Las Vegas shows failed to stimulate demand. Brexit and the U.S. election season have added to economic uncertainty, while Chinese demand remains cautious. The RapNet Diamond Index (RAPI™) for 1-carat, GIA-graded polished diamonds fell 0.5 percent in June. RAPI for 0.30-carat diamonds retreated 1.6 percent, while RAPI for 0.50-carat diamonds slid 0.4 percent. RAPI for 3-carat diamonds declined 2.4 percent.

RAPI for 1-carat diamonds slipped 0.7 percent in the second quarter, giving up some of the gains made in the first three months of the year. The index increased 0.7 percent during the first half but is down 4.7 percent from one year ago.

Overall, the first half was a relatively positive period for the diamond trade. Manufacturers returned to the rough market to make fresh purchases after they used up much of the residual inventory from 2014 and 2015. Furthermore, retailers replenished stock sold during the holiday season, stimulating polished trading in the first quarter.

Mining companies recorded improved sales in the first half and manufacturers reported higher profit margins. Polished production increased from levels seen in 2015, stabilizing at an estimated 70 percent of full capacity.However, polished demand slowed in the second quarter, compounded because of the seasonally-quiet nature of the period.

The Las Vegas shows signalled deep concern about lagging demand, growing interest in synthetic diamonds, and the challenge of marketing to Millennials. This report outlines the impact these trends had on the diamond market across the polished, rough and retail sectors in June and the first six months of the year. While the industry is in a healthier position in 2016 than it was last year, the trade faces the same challenges as before.

Meanwhile, the June Hong Kong show revealed continued caution in Asia Pacific. Expectations were low  in  the  weeks  leading  up  to the show, which is considered the smallest of the three annual Hong Kong fairs. Trading was quiet  as selective Chinese buyers pushed for deeper discounts. Suppliers willing to compromise on price had a relatively busy show.

Both the Las Vegas and Hong Kong events signalled steady demand for SI-clarity diamonds of all sizes. Demand for larger-sized diamonds was weak, particularly for better qualities. RAPI for 0.30-carat and 0.40-carat diamonds softened as supply increased in the second quarter with new polished being processed by manufacturers.

While profitability has improved in 2016 – as rough prices fell in 2015 and polished prices strengthened at   the   beginning   of   this   year – it remained a challenge for manufacturers, particularly since prices softened in the past two months. Asian Star, an India-based manufacturer, reported that sales surged 29 percent in the fourth fiscal quarter that ended March 31 but net profit fell 10 percent as margins continue to be tight.

Liquidity is also tight and the decision  by  Standard  Chartered to discontinue lending to the diamond   industry   will   result   in a $2 billion decline in available credit  to  the  industry  over  the next year or two. The decision was another reminder of the “high risk” perception the banks have about the diamond trade.

The banks require diamond companies comply with reporting standards that are more stringent and that they demonstrate transparency   and   sustainability in their businesses. Tighter bank credit will impact manufacturers’ ability to buy rough. Among polished buyers, however, there was a sense in Las Vegas and Hong Kong there is sufficient liquidity but they’re waiting for the right opportunity to spend.

Their appetite has narrowed to a more select variety of diamonds. That’s particularly evident as the market tends to go quiet in the second and  third  quarters  and  trading is expected to be constrained through the July-August summer months.

De Beers kept prices largely stable at the June sight and prices have remained unchanged since the company reduced prices in January. De Beers adjusted its assortments, resulting in some boxes becoming more expensive even as prices did not rise. De Beers goods were trading for average premiums of 3 percent to 4 percent on the secondary market   although   there   was   a large variation in the premiums for different boxes – some boxes were trading at double-digit premiums and  some  at  a  slight  discount after costs.

Alrosa also kept prices stable and they remain unchanged since August. Still, the Russian miner has managed to sell most of the goods it offers each month. Alrosa reported revenue soared 37 percent and profit more than doubled in the first three months of 2016. The Russian miner’s performance was boosted partly by the strength of the dollar against the Russian rubble and as rough markets vastly improved this year.

Strong first-quarter demand enabled Alrosa to reduce its stockpile by about 4 million carats to less than 18 million carats, after lower demand in 2015 led to an accumulation of inventory.  Demand  is  expected  to  slow  in the second half of the year, which is  traditionally  a  quieter  period for rough sales. Furthermore, manufacturers have sufficient inventory to satisfy sluggish polished demand and are not anticipated to ramp up production further in the coming months.

Already in June, demand for certain categories of rough softened with prices declining at auctions for 3 to 6 grainers which yields under-the-carat polished. Further declines are expected to follow as manufacturers seek to safeguard their profit margins and align inventory with lower levels of polished demand.