Evidently, the diamond industry’s mood depends now on the next trade event. With the Chinese New Year and Valentine’s Day behind us, the focus now shifts to the upcoming Hong Kong and Basel trade shows.
It seems our day-to-day professional life is preoccupied with getting to the next sales event. In a market with undefined polished diamond prices, the next trade show may be the one that lifts the fog.
Polished diamond prices are apparently holding steady. In some of the industry centers, sentiment has grown stronger despite the large volumes of inventory and the tightness of liquidity. As diamond factories have significantly reduced their manufacturing capacities, there are lower volumes of new polished diamonds reaching the market. This, in turn, will lead to a shortage in certain sizes and qualities, resulting in a stabilization created by free market forces.
Lull in New York, Uptick in India and Belgium
The New York market seems generally quiet. There is no replenishing of stock and diamonds have been bought lately just to fill orders. Traders say that it is not even a matter of price but merely a reaction to the uncertainty ruling the market. It seems that there is a stable demand for diamonds in the range of 1 carat rounds and fancies of H-I colors SI qualities. In contrast, higher colors and qualities are apparently moving very slow.
In India, the market seems a bit stronger due to the reduction in manufacturing and shortage created in certain ranges. Some traders hope that market forces will maintain manufacturing at current ratio. They believe that if manufacturers will return to full polished capacity, it might drag polished diamond prices down. The market sentiment in India is still weak, despite the upcoming trade events.
Market sentiment in Belgium seems to slightly improve as most traders have been preparing for the Hong Kong trade show that starts today (Monday). There is demand for 2-3 carats rounds, while dossiers and 1-carat diamonds have been moving slowly. The reaction to the diamantkring Rough diamonds show that took place last week in Antwerp has been relatively positive and manufacturers showed interest.
Hopes from Israel
The mood in Israel seems to be slightly improved, possibly because of the upcoming Hong Kong show. Many traders report that there is steady demand from large U.S. retailers that is fueling the local market with positive sentiment and supporting polished price levels. Still, liquidity is tight. Local as well as visiting buyers are pressuring for bigger discounts, looking for bargains.
Chinese New Year Surge
Demand seems to focus on American goods i.e. G-M colors SI-I2 clarities in all sizes as well as fancy shapes. "The Chinese New Year has improved the level of demand from the Far East”, says an encouraged though cautious Israeli trader.
Hong Kong has seen low trade volumes lately. Market sentiment seems to be on the weak side. Most local traders, coming back from the Chinese New Year holiday, are busy with preparation for the HK trade show, which they hope will bring about improvement in the local market as well. Demand is seen in 1-3 carats rounds and Fancy shapes in the VS-SI range. In addition, an increasing demand for fancy and intense yellow colors is felt.
Rough and Tough
Primary rough diamond sources staged sales during the past two weeks. It seems that price corrections were made in some of the qualities and sizes. One of De Beers’ brokers said recently that "the presentation of the February Sight was similar to last month’s with only targeted and minor price adjustments made to a few boxes". "We understand the February Sight was announced in the region of $630m", the broker said.
It seems that De Beers gave Sight holders the opportunity to defer up to 25% of their allocations while selling a small amount of Ex-Plan rough in areas where there was specific demand. However, De Beers brokers reported that Sight holders differed less boxes ahead of the February Sight than they did in January, and it seems that the overall mood was somewhat improved compared to last month. Manufacturers have welcomed the price corrections while acknowledging that they are not enough to bring them back to profitability.
As regard to the secondary market, most of the boxes offered were most likely sold at cost without achieving premiums, according to sources. Despite the higher volume of supplies, there is still a gap between these supplies and the volumes manufacturers need. At the same time, however, there is only a limited available supply from secondary sources and the outside market. This may explain why some of the tenders ended with high prices.
Manufacturers in the line of fire
Despite the improved mood it seems that it is the Midstream (manufacturers) which is in the line of fire again. On the one hand, they have to meet their commitments and buy the rough diamonds that primary sources are offering or they will lose their supply sources. On the other hand, they have to find a way to protect themselves in a market suffering from slow movement of polished diamonds and tight liquidity. Then there is the added element of "beneficiation".
Governments of rough diamond-producing countries tend to believe that they should and can generate greater economic benefits from their diamonds on top of royalties and taxes – both direct and indirect. They call it "beneficiation.” They expect manufacturers to build factories, train and employ local workers, build buildings, pave roads or contribute to the economies of their countries in additional ways.
However, it seems that the existing models are not functioning well. Recently, it has been reported that three major diamond polishing factories in Botswana had to lay off their workers and shut down operations. This is not the first time this has happened. Other diamond-producing countries went through the same in the past.
First it was Sierra Leone in the 1960s, followed by the Central African Empire in the 1960s and 70s, then Canada some 10 years ago and Namibia in the early 2010s. In all of these countries, factories were built, staff was trained, rough diamonds supplied, and the high costs and inefficiencies proved the ventures unfeasible from an economic standpoint.
Manufacturers know better about the polishing business model and they should be listened to. They need to have tight control of their production line, they should have the necessary infrastructure in place, and the backup of a knowledgeable and professional workforce. They should also be able to buy rough diamonds at a reasonable price for beneficiation to work. These elements are apparently more important than just enjoying lower wages. It seems that there is no better way to go about it but to rely on the Midstream, its efficiency and experience.
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 advisor.
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.