The holiday shopping season is in full swing, and retailers are seeing the usual seasonal surge in shopping. Diamond trading centers are reporting a pick-up in demand. But demand is nowhere near that of previous years – not in size, volume or even timing, which was later than in the past. Consumer demand for fine jewelry is expected to be higher in the US and China than it was last year, but will likely be focused on lower price point items.
The US: Retailers Bought More Goods
In the US, the most important market for the diamond industry (especially during November and December), retailers’ demand for diamonds rose across the board, despite a mixed mood following the election results. Some storeowners, particular those on the higher end of the spectrum, are very optimistic about the future, in particular after Trump’s victory. However, in the large urban centers of the West Coast and elsewhere, many people are unhappy with the outcome of the presidential election, and have a gloomy view regarding future diamond sales.
In general, specialty jewelry retailers woke up to the season in early to mid-November, and placed more orders for loose, polished diamonds. But many demands are difficult to fulfill, according to wholesalers. For example, Oval and Pear shapes in very fine makes (VS2/SI1 D-H) are in demand and difficult to find, and even Squares (1/2 to 3/4, white SI) are not readily available. At the same time, storeowners are not willing to spend more on diamond purchases than they did three months ago.
Regarding Rounds, there is a sense that independents are following the lead of larger specialty retailers, and are aiming to build a little bit of inventory of G-I / VS2- to I1 goods, but are still afraid to make big commitments. Because of the instability of the retail sector, coupled with the cautious financial approach of many polished diamond wholesalers, diamond dealers often refuse to provide the desirable size and quality goods on memo. Further, they are recalling whatever inventory they had outstanding in the stores to decrease risks of non-payments. The stores that are selling "promotional jewelry" are not very optimistic, likely because demand is limited. There are some concerns in the market that a number of these retailers will close their doors at the end of the season.
The demonetization move by India’s Prime Minister deeply affected the Indian jewelry sector at large, the diamond industry included. India is a very cash-intensive economy. According to press reports, government corruption is apparently rampant, and undeclared transactions are commonplace in retail and in other parts of the Indian economy. Because of the tough restrictions placed on both individuals and businesses regarding the amount of money that can be deposited at a bank without reporting its origin, large sums of ostensibly “black” cash money have nowhere to go.
The weakest links in India’s diamond and jewelry industry are seemingly the small jewelry retailers across the country, and small manufacturers in Surat. Both groups depend on cash transactions, and both are supposedly of under-reporting their financial activities. The drop in available cash is hurting their ability to make purchases, and will likely lead to a certain level of consolidation. It is still too early to assess how deep or wide this will be.
Currently, the expectation is that demonetization will hurt many in the diamond industry. Even though activity in the past month has been limited, the government’s demonetization policy has practically ensured a downturn in wholesale business, Sales to the domestic market have been hit particularly hard, with absolutely no demand from consumers after initial purchases rose and then abated.
The net result was that demand for goods below 0.30 cts dropped, as did demand for lower color goods in nearly all sizes. The few demands that we saw in October almost completely evaporated. This downturn was echoed in a drop in demand for the lowest-cost rough diamonds.
According to diamond traders in Hong Kong, the local market remains slow, although there was a little bit of pick-up in demand ahead of the Christmas season. These traders had very low expectations from the November 24-27 jewelry show, and their pessimism proved to be prescient. Demand in the Mainland China market was reported as stable.
The improvement in demand was for Rounds and Fancy Shape Collection goods (D-G / SI and Pique) in the 0.50-1 carat size range. Demand for Fancy Yellows has slowed down, while demand for Pink and other fancy color goods is doing well.
The Indian trader community in Hong Kong is complaining bitterly about demonetization, and that they have money that they cannot exchange for new notes, after local Hong Kong banks and all money exchanges stopped accepting Indian rupees.
The general Israeli diamond market is characterized by steady-yet-selective polished diamond demands. Regarding smaller goods, there was strong demand for 1-1.5 points and a shortage of supply. Prices for these goods, which were considered high, declined and stabilized. Goods in the 1.5-5 point range are in very low demand, and inventories are high. There is a serious shortage of -11 goods, due to very limited manufacturing, and demand is outstripping supply.
For 1/10-carat diamonds, especially VVS clarity items, there is strong demand from Switzerland and France. 1/6-carat pieces are doing very well across the board, and 1/5-carat pieces are doing well against a shortage in goods, but the smaller 0.18-carat items are of no interest to buyers. Prices of 1/4-carat diamonds were high, even higher than thirds, but they have recently come down, and demand for these goods is healthy. There is strong demand for 1/3-carat collection and white goods VS-SI, more in parcels than certified. Dossiers are in steady demand.
There is weak demand for color goods (JKL) and prices have adjusted accordingly. TTLB are very weak and demand is low. Demand for yellow fancy color diamonds is limited to good makes, and demand for other fancy yellow goods is low. Well-made goods are in short supply.
Princess shapes continue to be in very low demand, Ovals and Pear shapes have a very good market and are in limited availability in Israel, leading to high prices for all sizes. Demand for Marquises remains very slow.
Inventory levels of polished diamonds have generally declined in the diamond centers. This is most notable in the round, GIA certified, VS-SI clarity range from 0.40-carat all the way up to 2-carat. Conversely, a buildup in inventory is noticeable in the higher clarity polished goods, seen mainly for GIA certified Rounds in IF-VVS clarities from 0.18-carats to 0.89-carats.
For larger goods, 6 carats and up, inventories are stable. Among the smaller goods, 0.15-0.17-carat inventories are stable, as are the inventories of many items in the 0.18-0.29-carat range of round polished.
Diamond Centers’ Polished Diamond Inventory
Source: Mercury Diamond©
Overall, the diamond pipeline has been in a typical cyclical state for the last two months of the year. Mining, rough diamond trading and manufacturing have slowed down, while polished wholesale sales and retailing activity have increased. However, the level of demand and the amount of economic activity in the midstream of the diamond pipeline is not as buoyant as in previous years, something that should worry us all.
The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified adviser.
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Diamond industrialist Ehud Arye Laniado is a man passionate about diamonds. From his early 20s in Africa and later in Belgium honing his expertise in forecasting the value of polished diamonds by examining rough diamonds by hand, till today four decades later, as chairman of his international diamond businesses spanning mining, exploration, rough and polished diamond valuation, trading, manufacturing, retail and consultancy services, Laniado has mastered both the miniscule details of evaluating and pricing individual rough diamonds and the entire structure of the diamond industry. Today, his global operations are at the forefront of the industry, recognised in diamond capitals from Mumbai to Tel Aviv and Hong Kong to New York.