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February 2018 Market Report

February 2018 Market Report

The diamond market was pulled in two opposing directions in February. On the one hand, demand was better, mainly in the US and India, and prices headed up for most goods. On the other hand, a banking scandal is currently rocking India, injecting a great deal of uncertainty into the diamond trading centers.

US

After a brief period of restocking, US retailers continued doing business as usual. They bought a fairly narrow range of goods, without wavering much in color or clarity. Valentine’s Day came and went without leaving much of a mark on retailers, perhaps an indication that diamond jewelry has lost some of its shine as a Valentine’s Day attraction.

What did leave an impression was the sharp mid-month fall of the US stock markets. As it happened so fast and was so unexpected, it created a sense of uncertainty, even nervousness among consumers. Retailers are now focused on the engagement season. 

According to polished diamond wholesalers in the US, store owners are very cautious about what and how they buy, in particular those who have some serious experience on their hands. Specialty jewelry retailers are interested only in "safe” merchandise. That means rounds, 0.75-2 carats, in VS to SI2 clarities. These are traditional goods for engagement rings, the bread and butter of this season. In fancy shapes, demand is focused on smaller goods below one carat, mainly mid-range colors.

There is a small revival for square cuts, 2 carats and above in top color/clarity combinations. Together with a certain demand for high-end fancy shapes weighing 5-8 carats, this is possibly driven by demand from the Far East.

Also, Swatch reported growth in local currency accelerated in the North American market over the course of the past year. European retail giant Bucherer purchased leading watch retailer Tourneau from Green Equity Investors. The sum of the purchase was undisclosed, but estimated at slightly over $355 million. Furthermore, jewelry retailer Vrai & Oro, a subsidiary of lab-grown diamond producer Diamond Foundry, is closing its Los Angeles store, and Swatch reported that sales in the Americas were up 6%. Signet announced the departure of two additional executives, including Chief Retail Insights & Strategy Officer George Murray, resulting in a near complete overhaul of the retailer’s management.

India

The Indian diamond market felt strong until the Nirav Modi/Mahul Choksi scandal broke. According to Indian press reports , the two are suspected of defrauding local banks to the tune of $1.8 billion. Indian diamond traders are mainly concerned by the reputational damage and how the fallout will impact banks’ willingness to supply financing to the diamond market. We think the issue runs deeper than that. This event exposes the alleged widespread practice of bribing bank managers and may result in a deep examination of other possible illegal practices that will lead to far-reaching consequences. The hope is that if such practices are exposed, there will be a big wave that will sweep out the negative elements and clean up the industry – for everyone’s benefit.

Other than that, polished diamond prices experienced a clear increase. Traders note that all buyers were willing to buy the offered goods at the previous prices. After the price hikes, most buyers showed some resistance. Those who refused the new prices are likely to wait until after the trade show in Hong Kong, assuming that diamond prices will decline as they have in the past few years. Some traders may have raised prices as a way to hoard their goods before the show.

Israel

Good demands were reported in the Israeli diamond market, with a higher traffic than usual on the Israel Diamond Exchange (IDE), rising diamond prices, and good sentiment. One reason for this was International Diamond Week, a trade fair that brought several hundred buyers to the diamond center and generated many transactions.

In addition, shortages of several goods continued and even expanded, pushing up prices of goods that are in demand in the process. The two additional drivers are improved demand from the Far East and expectations from the Hong Kong trade shows.

The good demand for 0.30- and 0.40-carat rounds continued in February, and traders are reporting temporary shortages. There is also good demand for 0.25 carats as well as 0.10 carat rounds. Continued demand for triple excellent rounds, one carat in white and collection colors VS-SI clarities, as well as for cape color, cleanish rounds 3-5 carat against shortages and rising prices. Shortages are also reported for better looking fancy yellow goods, leading to rising prices.

Although expectations from the Hong Kong shows was high, Israeli traders also expect prices to soften after it ends, although the overall changes in demand reflect greater stability in the market and fewer changes.

Furthermore, IDE and startup Carats.io unveiled a diamond-based cryptocurrency, Carats.io Diamond Currency (CDC). Trade in the crypto currency will be based on the new Get Diamonds index of prices of polished diamonds sold by Israeli companies. The startup and IDE are striving to create diamond-based financial tools such as a futures trade.

Advanced diamond tools company, Sarine, opened a diamond grading lab in Israel, marking a new direction for the firm. The firm intends to open its next lab in Surat, India.

Hong Kong

Much of the trading activity in Hong Kong was on hold as many traders were celebrating the Lunar New Year. Although the holiday runs February 16-19, many companies were closed until the 23rd. Before and after the Lunar New Year, the local diamond trade experienced slow trading activity.

The Hong Kong Jewellery Show opened on February 27 and runs through March 5, 2018. Ahead of the show, local traders reported positive expectations. Early reports say traffic was slower than usual, probably due to the Lunar New Year. Prices of polished diamonds were up, and demand was mainly for commercial goods. At writing time, exhibitors had mixed opinions of the show. It seems that those who invested wisely in marketing or focused on a niche were more satisfied.

Prior to the show, traders reported some movement ahead of Valentine’s Day, mainly 1- and 2-carat rounds, D-G colors, VS SI clarities. Stable demand for 0.30-3- carat rounds and rising prices in the lower single digits. We saw stable demand for the main fancy shapes – marquise, heart and cushion, and weak demand for emerald- and princess-shaped goods.

Changes in Level of Polished Diamond Demands – February 2018

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Changes in Level of Polished Diamond Inventories – February 2018

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 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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