NAJ News

Precious Materials Insight: Polished diamond prices risk further falls in the near term

04 May 2020

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Polished diamond prices risk further downwards pressure as the global coronavirus-driven economic crisis has slashed demand, but there have been some positive signals at the top end of the diamond jewellery market.

A big supply overhang in India, where most natural diamonds are processed, combined with a slump in global demand, augur for a further weakening of diamond prices in the short term.

Diamond markets are facing a severe liquidity crisis as jewellery retail, diamond manufacturing and trading shut down, the Rapaport Group has reported.

The severe global economic downturn, driven by the coronavirus pandemic, has choked diamond consumption as consumers have struggled through life under various forms of lockdown.

The dealer market in the United States has been quiet with New York, hard hit by Covid-19, remaining in containment.  In Antwerp, dealers have anticipated limited new rough diamonds supply in the next two months as the economic crisis drags on.

The big inventory of polished diamonds in India weighs on the supply side. Indian manufacturers bought large volumes of rough diamonds between December and February, anticipating strong inventory replacement after a good U.S. holiday season, Rapaport reported. Banks in India have tightened credit to the diamonds sector after financing scandals in recent years and due to the tough market conditions created by over-supply.

De Beers CEO Bruce Cleaver has called on the trade to allow rough purchases, assuring manufacturers the company won’t require them to buy in the weak market, Rapaport reported.

“We will only sell [rough] when the demand is such that it can create sustainable value for all of us,” the executive wrote in a blog post on May 1.

“However, just as we are not compelling our clients to purchase, we strongly believe it is counterproductive for any part of the industry to compel them not to purchase.”

Cleaver’s plea came after India’s Gem & Jewellery Export Promotion Council (GJEPC) and other Indian trade organisations called on the nation’s diamond sector to pause rough-diamond imports for 30 days, beginning on May 15.

The move would improve the Indian industry’s liquidity situation and deplete inflated polished inventories.

Jignesh Mehta, founder and managing director of Mumbai-based polished diamond supplier Divine Solitaires, said,

“Less rough supply in India during this period will mean that factories will cut and polish fewer diamonds, particularly with the new social distancing regulations in place,”

“This will limit new polished diamond production.”

De Beers has suspended production at most of its mines. The company also cancelled its March sight (its scheduled sale to its clients) and is offering 100% deferrals at sight 4, which begins on May 4.

 

Depleted demand

The demand outlook remains subdued as the economic emergency will trigger lost jobs and incomes, notably in the United States, one of the world’s biggest diamond and diamond jewellery markets.

The U.S. economy shrank by 4.8 percent in the first quarter of 2020.

U.S. consumer sentiment has plunged amid high unemployment, with the Conference Board Consumer Confidence Index down 27 percent to 86.9 in April, its lowest reading in nearly six years.

International trade fairs, important diamond and diamond jewellery buying events have been cancelled or postponed since March.

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To boost demand, diamond jewellery retailers will focus on bridal, highlighting important relationships. Rapaport, which publishes a widely followed pricing system for polished diamonds, has reported a sharp fall in diamond prices.

The RapNet Diamond Index (RAPI™) for 1-carat diamonds dropped 6.8% in March and 8.7% in the first quarter. Many diamantaires protested about the price cut, triggering calls for alternative pricing systems.

Martin Rapaport, who heads the Rapaport Group, defended the decision to announce the price cut, saying that it was an inevitable response to global market realities.

Russian diamond miner ALROSA which, like De Beers, is a huge supplier of rough diamonds to the global market, has said,

“The spread of coronavirus and counter-pandemic measures continue having their negative impact on all markets worldwide. Under these circumstances, getting back to the traditional trading session format seems impossible, as it would have a dramatic effect on midstream companies.

“In these challenging times, ALROSA is committed to support its clients. For the May trading session, the company offers them maximum flexibility, retaining the terms announced at the previous April period. ALROSA doesn’t set the obligatory buyout limit, allowing its clients to keep off the trade if they want. Deferred goods will be offered during future sales periods.”

ALROSA’s contract sale starts on May 13.

 

High-value auctions 

At the top end of the market, positive signals have emerged of resilient demand by super-wealthy collectors following news that Sotheby’s sold a Cartier gem-set, diamond and enamel “tutti frutti” Art Deco bracelet for $1.3 million, a record price for any jewel sold in an online auction.

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Image: Sotheby's gem-set, diamond and enamel 'tutti frutti' bracelet, Cartier, estimate $600,000-800,000

Catharine Becket, Head of Sotheby’s Magnificent Jewels Auctions in New York, said,

“The result achieved for this bracelet is testament to the fact that, even under the most challenging of circumstances, the demand for great art endures.

“Tutti Frutti jewels have always held a special allure for collectors, capturing the West’s fascination with the ‘exotic’ at a time when travel was relatively limited, much as it is today.”

Digital technologies are offering hope on the demand side.

Referring to the recent success of online auction sales, David Bennett, Worldwide Chairman of Sotheby’s Jewellery Division, said,

“Our online sales realised some of their best performances ever, with many new and young collectors from around the world joining.”

 

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Source: David Brough, Editor of Jewellery Outlook